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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarter ended June 30, 2004



Commission file number: 0-25137



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CONCUR TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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State of Incorporation: Delaware

I.R.S. Employer I.D. No.: 91-1608052

Address of principal executive offices: 6222 185th Avenue NE

Redmond, Washington 98052

Telephone number, including area code: 425-702-8808



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes  x    No ̈



The number of shares outstanding of the registrants common stock as of
August 2, 2004 was 32,883,903.



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##### Table of Contents

CONCUR TECHNOLOGIES, INC.



FORM 10-Q

JUNE 30, 2004



INDEX



|                                                                                                 |  |    |  |     
|------------------------------------------------------------------------------------------------ |  | -- |  | ----
|                                                                                                 |  |    |  | Page
|PART I.
FINANCIAL INFORMATION                                                                    |  | 3 
|                                                                                                 | 
|ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                            |  | 3 
|                                                                                                 | 
|Consolidated Statements of Operations for the three and nine months ended June 30, 2004 and 2003 |  | 3 
|                                                                                                 | 
|Consolidated Balance Sheets as of June 30, 2004 and September 30, 2003                           |  | 4 
|                                                                                                 | 
|Consolidated Statements of Cash Flows for the three and nine months ended June 30, 2004 and 2003 |  | 5 
|                                                                                                 | 
|Notes to Consolidated Financial Statements                                                       |  | 6 
|                                                                                                 | 
|ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    |  | 13
|                                                                                                 | 
|ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                               |  | 30
|                                                                                                 | 
|ITEM 4.
CONTROLS AND PROCEDURES                                                                  |  | 32
|                                                                                                 | 
|PART II.
OTHER INFORMATION                                                                       |  | 33
|                                                                                                 | 
|ITEM 1.
LEGAL PROCEEDINGS                                                                        |  | 33
|                                                                                                 | 
|ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K                                                         |  | 33
|                                                                                                 | 
|SIGNATURE                                                                                        |  | 34



2



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##### Table of Contents

PART I.
FINANCIAL INFORMATION



ITEM 1.
CONSOLIDATED FINANCIAL STATEMENTS



Concur Technologies, Inc.



Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)



|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|---------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                           |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                           |  | 2004                       |        |   | 2003                      |   |        | 2004 |  |   | 2003   |  
|Revenues:                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Subscription                                               |  | $                          | 10,365 |   |                           | $ | 8,546  |      |  | $ | 29,239 |   |  | $ | 24,727 |  
|Consulting                                                 |  |                            | 2,985  |   |                           |   | 3,085  |      |  |   | 8,212  |   |  |   | 11,300 |  
|License                                                    |  |                            | 1,107  |   |                           |   | 2,543  |      |  |   | 3,639  |   |  |   | 6,553  |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total revenues (1)                                         |  |                            | 14,457 |   |                           |   | 14,174 |      |  |   | 41,090 |   |  |   | 42,580 |  
|                                                           |  |                            |        |  
|Expenses:                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Cost of operations (2)                                     |  |                            | 5,922  |   |                           |   | 5,536  |      |  |   | 16,704 |   |  |   | 17,733 |  
|Sales and marketing                                        |  |                            | 3,663  |   |                           |   | 3,654  |      |  |   | 10,495 |   |  |   | 11,081 |  
|Research and development                                   |  |                            | 2,177  |   |                           |   | 2,627  |      |  |   | 6,661  |   |  |   | 8,008  |  
|General and administrative                                 |  |                            | 1,814  |   |                           |   | 1,750  |      |  |   | 5,145  |   |  |   | 5,078  |  
|Amortization of intangible asset                           |  |                            | 285    |   |                           |   | 285    |      |  |   | 855    |   |  |   | 855    |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Total expenses                                             |  |                            | 13,861 |   |                           |   | 13,852 |      |  |   | 39,860 |   |  |   | 42,755 |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Income (loss) from operations                              |  |                            | 596    |   |                           |   | 322    |      |  |   | 1,230  |   |  |   | (175   | )
|                                                           |  |                            |        |  
|Interest income                                            |  |                            | 64     |   |                           |   | 55     |      |  |   | 167    |   |  |   | 165    |  
|Interest expense                                           |  |                            | (9     | ) |                           |   | (28    | )    |  |   | (24    | ) |  |   | (105   | )
|Other income, net                                          |  |                            | 3      |   |                           |   | 50     |      |  |   | 84     |   |  |   | 72     |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                          |  | $                          | 654    |   |                           | $ | 399    |      |  | $ | 1,457  |   |  | $ | (43    | )
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss) per share:                               |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                      |  | $                          | 0.02   |   |                           | $ | 0.01   |      |  | $ | 0.04   |   |  | $ | (0.00  | )
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                    |  | $                          | 0.02   |   |                           | $ | 0.01   |      |  | $ | 0.04   |   |  | $ | (0.00  | )
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Shares used in calculation of net income (loss) per share: |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                      |  |                            | 32,753 |   |                           |   | 31,433 |      |  |   | 32,488 |   |  |   | 30,998 |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Diluted                                                    |  |                            | 36,892 |   |                           |   | 35,630 |      |  |   | 36,816 |   |  |   | 30,998 |  
|                                                           |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  

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|(1) | Includes sales to related parties of $410 in the three months ended June 30, 2003, and $849 in the nine months ended June 30, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes payments to related parties of $386 in the nine months ended June 30, 2003.
|--- | ------------------------------------------------------------------------------------



See accompanying notes.



3



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##### Table of Contents

Concur Technologies, Inc.



Consolidated Balance Sheets

(In thousands, except per share amount)

(Unaudited)



|                                                             |  |              |          |   |                   |   |          |  
|------------------------------------------------------------ |  | ------------ | -------- | - | ----------------- | - | -------- | -
|                                                             |  | June 30,2004 |          |   | September 30,2003 |  
|Assets                                                       |  |              |          |   |                   |   |          |  
|Current assets:                                              |  |              |          |   |                   |   |          |  
|Cash and cash equivalents                                    |  | $            | 23,950   |   |                   | $ | 21,607   |  
|Accounts receivable, net of allowances of $568 and $499      |  |              | 9,467    |   |                   |   | 7,862    |  
|Prepaid expenses                                             |  |              | 1,312    |   |                   |   | 1,425    |  
|Other current assets                                         |  |              | 1,781    |   |                   |   | 1,238    |  
|                                                             |  |              |          |   |                   |   |          |  
|Total current assets                                         |  |              | 36,510   |   |                   |   | 32,132   |  
|                                                             |  |             
|Property and equipment, net                                  |  |              | 4,205    |   |                   |   | 1,331    |  
|Restricted cash                                              |  |              | 550      |   |                   |   | 550      |  
|Acquired customer base intangible asset, net of amortization |  |              | 3,515    |   |                   |   | 4,370    |  
|Goodwill                                                     |  |              | 3,704    |   |                   |   | 3,704    |  
|Deposits and other assets                                    |  |              | 2,003    |   |                   |   | 886      |  
|                                                             |  |              |          |   |                   |   |          |  
|Total assets                                                 |  | $            | 50,487   |   |                   | $ | 42,973   |  
|                                                             |  |              |          |   |                   |   |          |  
|Liabilities and stockholders equity                         |  |              |          |   |                   |   |          |  
|Current liabilities:                                         |  |              |          |   |                   |   |          |  
|Accounts payable                                             |  | $            | 1,350    |   |                   | $ | 1,015    |  
|Accrued compensation                                         |  |              | 1,225    |   |                   |   | 945      |  
|Other accrued liabilities                                    |  |              | 2,401    |   |                   |   | 2,518    |  
|Current portion of long-term obligations                     |  |              | 440      |   |                   |   | 768      |  
|Current portion of deferred revenues                         |  |              | 11,363   |   |                   |   | 9,905    |  
|                                                             |  |              |          |   |                   |   |          |  
|Total current liabilities                                    |  |              | 16,779   |   |                   |   | 15,151   |  
|                                                             |  |             
|Long-term obligations, net of current portion                |  |              | 65       |   |                   |   | 199      |  
|Long-term deferred revenues, net of current portion          |  |              | 4,349    |   |                   |   | 2,015    |  
|                                                             |  |              |          |   |                   |   |          |  
|Total liabilities                                            |  |              | 21,193   |   |                   |   | 17,365   |  
|                                                             |  |              |          |   |                   |   |          |  
|Commitments and contingencies                                |  |              |          |   |                   |   |          |  
|                                                             |  |             
|Stockholders equity:                                        |  |              |          |   |                   |   |          |  
|Common stock, par value $0.001 per share:                    |  |              |          |   |                   |   |          |  
|Authorized  60,000;                                         |  |              |          |   |                   |   |          |  
|Issued and Outstanding  32,851 and 32,142                   |  |              | 239,554  |   |                   |   | 237,402  |  
|Accumulated other comprehensive income                       |  |              | 77       |   |                   |   |         |  
|Accumulated deficit                                          |  |              | (210,337 | ) |                   |   | (211,794 | )
|                                                             |  |              |          |   |                   |   |          |  
|Total stockholders equity                                   |  |              | 29,294   |   |                   |   | 25,608   |  
|                                                             |  |              |          |   |                   |   |          |  
|Total liabilities and stockholders equity                   |  | $            | 50,487   |   |                   | $ | 42,973   |  
|                                                             |  |              |          |   |                   |   |          |  



See accompanying
notes.



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##### Table of Contents

Concur Technologies, Inc.



Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                  |  | Three Months EndedJune 30, |        |   | Nine Months EndedJune 30, |  
|                                                                                                  |  | 2004                       |        |   | 2003                      |   |        | 2004 |  |   | 2003   |  
|Operating activities:                                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net income (loss)                                                                                 |  | $                          | 654    |   |                           | $ | 399    |      |  | $ | 1,457  |   |  | $ | (43    | )
|Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Amortization of intangible asset                                                                  |  |                            | 285    |   |                           |   | 285    |      |  |   | 855    |   |  |   | 855    |  
|Depreciation                                                                                      |  |                            | 535    |   |                           |   | 601    |      |  |   | 1,344  |   |  |   | 2,372  |  
|Provision for allowance for accounts receivable                                                   |  |                            | 7      |   |                           |   | 53     |      |  |   | 431    |   |  |   | 253    |  
|Changes in operating assets and liabilities, net of acquisition:                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Accounts receivable                                                                               |  |                            | (1,372 | ) |                           |   | (1,479 | )    |  |   | (2,019 | ) |  |   | 829    |  
|Prepaid expenses, deposits, and other assets                                                      |  |                            | (785   | ) |                           |   | (75    | )    |  |   | (1,534 | ) |  |   | (605   | )
|Accounts payable                                                                                  |  |                            | 40     |   |                           |   | 46     |      |  |   | 325    |   |  |   | (988   | )
|Accrued liabilities                                                                               |  |                            | 43     |   |                           |   | 59     |      |  |   | 94     |   |  |   | (805   | )
|Deferred revenues                                                                                 |  |                            | 2,264  |   |                           |   | (588   | )    |  |   | 3,771  |   |  |   | 1,594  |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net cash provided by (used in) operating activities                                               |  |                            | 1,671  |   |                           |   | (699   | )    |  |   | 4,724  |   |  |   | 3,462  |  
|                                                                                                  |  |                            |        |  
|Investing activities:                                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Purchases of property and equipment                                                               |  |                            | (1,608 | ) |                           |   | (277   | )    |  |   | (4,209 | ) |  |   | (734   | )
|Maturities of marketable securities                                                               |  |                            |       |   |                           |   | 1,024  |      |  |   |       |   |  |   | 2,024  |  
|Acquisition of Captura Software, Inc., net of cash acquired                                       |  |                            |       |   |                           |   | (41    | )    |  |   |       |   |  |   | (551   | )
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net cash (used in) provided by investing activities                                               |  |                            | (1,608 | ) |                           |   | 706    |      |  |   | (4,209 | ) |  |   | 739    |  
|                                                                                                  |  |                            |        |  
|Financing activities:                                                                             |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Proceeds from issuance of common stock from exercise of stock options                             |  |                            | 343    |   |                           |   | 2,113  |      |  |   | 1,397  |   |  |   | 2,451  |  
|Proceeds from issuance of common stock from employee stock purchase plan                          |  |                            | 755    |   |                           |   | 249    |      |  |   | 755    |   |  |   | 249    |  
|Proceeds from borrowings                                                                          |  |                            |       |   |                           |   |       |      |  |   | 289    |   |  |   | 915    |  
|Payments on borrowings and capital leases                                                         |  |                            | (235   | ) |                           |   | (381   | )    |  |   | (724   | ) |  |   | (1,508 | )
|Increase in restricted cash balances                                                              |  |                            |       |   |                           |   |       |      |  |   |       |   |  |   | (700   | )
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net cash provided by financing activities                                                         |  |                            | 863    |   |                           |   | 1,981  |      |  |   | 1,717  |   |  |   | 1,407  |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Effect of foreign currency exchange rates on cash and cash equivalents                            |  |                            | (29    | ) |                           |   |       |      |  |   | 111    |   |  |   |       |  
|                                                                                                  |  |                            |        |  
|Net increase in cash and cash equivalents                                                         |  |                            | 897    |   |                           |   | 1,988  |      |  |   | 2,343  |   |  |   | 5,608  |  
|                                                                                                  |  |                            |        |  
|Cash and cash equivalents at beginning of period                                                  |  |                            | 23,053 |   |                           |   | 17,366 |      |  |   | 21,607 |   |  |   | 13,746 |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Cash and cash equivalents at end of period                                                        |  | $                          | 23,950 |   |                           | $ | 19,354 |      |  | $ | 23,950 |   |  | $ | 19,354 |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Supplemental disclosure of cash flow information:                                                 |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Cash paid for interest                                                                            |  | $                          | 7      |   |                           | $ | 25     |      |  | $ | 35     |   |  | $ | 110    |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Common stock issued in connection with acquisition, net of issuance costs                         |  | $                          |       |   |                           | $ |       |      |  | $ |       |   |  | $ | 1,899  |  
|                                                                                                  |  |                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



See accompanying
notes.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



June 30, 2004

(Unaudited)



NOTE 1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Description of the Company



Concur is a leading provider of Corporate Expense Management subscription service and software solutions. Our solutions are designed to automate and
streamline business processes, reduce operating costs, improve internal controls, and empower businesses to apply greater insight to their spending patterns through comprehensive analytics. We provide our solutions through flexible subscription
services and license delivery models, and market and sell our solutions worldwide through a direct sales organization as well as through indirect distribution channels.



Throughout these financial statements Concur Technologies, Inc. is referred to as Concur, we,
us, and our.



Unaudited Interim Financial
Information



The financial information as of June 30,
2004, and for the three and nine months ended June 30, 2004 and 2003 is unaudited, but includes all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of our financial
position at such dates and our results of operations and cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States (GAAP). The balance sheet information at September 30, 2003
has been derived from our audited financial statements at that date but, in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC), does not include all of the information and notes
required by GAAP for complete financial statements. Operating results for the three and nine months ended June 30, 2004 are not necessarily indicative of results that may be expected for the entire fiscal year. The financial statements should be
read in conjunction with the financial statements and notes for the fiscal year ended September 30, 2003 included in Concurs 2003 Annual Report on Form 10-K.



Segment Information



We operate in and report on one segment (Corporate Expense Management software and services) based upon the provisions of Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standard (SFAS) No. 131, Disclosure about Segments of an Enterprise and Related Information.We market and sell our software in both the United States and in international
markets. Revenues from customers outside the United States as a percentage of total revenues were 15% and 12% for the nine months ended June 30, 2004 and 2003, respectively.



Principles of Consolidation



The consolidated financial statements include the accounts of Concur and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions were eliminated in consolidation.



Use of Estimates



The preparation of financial statements in conformity
with GAAP requires us to make estimates and assumptions affecting the amounts reported in the consolidated financial statements and accompanying notes. Changes in these estimates and assumptions may have a material impact on our financial statements
and accompanying notes. Examples of estimates and assumptions include the determination of certain provisions, including allowances for accounts receivable, product warranties, estimating useful lives of property and equipment, valuing and
estimating useful lives of intangible assets, valuing assets and liabilities acquired through business combinations, deferring certain revenues and costs, estimating expected lives of customer relationships, and estimating tax valuation allowances.



Reclassifications



We have made certain reclassifications to prior period amounts to conform to
the current period presentation. These reclassifications include, but are not limited to, reclassifying software maintenance revenues from service revenues into subscription revenues, and presentation of amounts previously reported in cost of sales
under expenses as cost of operations.



6



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##### Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



Revenue Recognition Policy



We recognize revenues in accordance with accounting standards for software
and service companies including American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, Software Revenue Recognition (SOP 97-2), as amended by SOP 98-9, the consensus
reached in Emerging Issues Task Force (EITF) Issue No. 00-3, Application of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entitys Hardware, the consensus reached in
EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the consensus reached in EITF Issue No. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing
More-Than-Incidental Software (EITF 03-5), SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104), SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, and related interpretations, including AICPA Technical Practice Aids.



We generate our revenues from the delivery of subscription services (which include software maintenance services), consulting services, and the sale of software licenses.



Generally, we recognize revenue when evidence of an arrangement exists,
delivery has occurred, the fees are fixed or determinable, and collection is considered probable. If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or determinable, we recognize
revenues as payments become due from the customer. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the earlier of satisfaction of the acceptance/performance criteria or the expiration
of the acceptance period, if applicable.



In contractual
arrangements that include the provision of multiple elements, we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the
arrangement. Multiple element arrangements require the delivery or performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are
presumed to have been negotiated together and, therefore, are accounted for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we
measure and allocate the total arrangement fee among each of the elements based on their fair value or vendor-specific objective evidence of fair value. Vendor-specific objective evidence is based on the price charged when an element is sold
separately or, in the case of an element not yet sold separately, the price established by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.



Subscription revenues consist of monthly fees paid for subscription services,
the amortization of set-up fees in connection with those services, fees paid for software maintenance services under software license arrangements, and in certain multiple element subscription arrangements where vendor specific objective evidence of
fair value does not exist for an undelivered subscription element, the amortized portion of the related license and consulting fees. Subscription fees are typically recognized monthly as the service is provided to the customer. Based on the
particular subscription service offering, the related set-up fees, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected
lives of the customer relationships, which generally range from two to five years. For those subscription service offerings that have been commercially available for only a short period of time, the contractual lives are used as the best estimate of
the expected lives of the customer relationships. We continue to evaluate and adjust the length of these amortization periods as we gain more experience with customer contract renewals and contract cancellations. Software maintenance services
include technical support and the right to receive unspecified upgrades and enhancements on a when-and-if available basis. Fees for software maintenance services are typically billed annually in advance of performance with provisions for subsequent
automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms, which typically are one year. Subscription revenues are adjusted for estimated sales allowances, which are based on our
historical experience, including a review of our experience related to price adjustments and sales credits issued.



Consulting revenues consist of fees for professional services, which consist of system implementation and integration, planning, data conversion,
training, and documentation of procedures. Consulting service fees are typically billed and recognized as revenue on a time-and-materials basis. In some instances, we sell consulting services under milestone or fixed-fee contracts and, in such
cases, recognize consulting revenues on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience related to price
adjustments and sales credits issued.



In service arrangements
including both consulting and subscription services, but not a license of our software, we recognize consulting revenues as they are performed if the consulting services qualify as a separate unit of accounting within the arrangement. The consulting
services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the subscription services, and delivery or performance of the subscription
services is considered probable and substantially within our control. We have determined that, in our service



7



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



arrangements of this type, the consulting services typically qualify as a separate unit of
accounting and, accordingly, the consulting revenues are recognized as the services are performed. If the consulting services do not qualify as a separate unit of accounting, the related revenues are combined with the subscription revenues, and
recognized ratably over the subscription service period.



License revenues consist of fees earned from, and allocable to, grants of licenses to use our software products. We recognize license revenues when evidence of a license arrangement exists, we have delivered the software, the amount of the
transaction is fixed or determinable, collection is probable, and vendor-specific objective evidence of fair value exists for any undelivered elements of the arrangement. Elements included in our multiple-element software arrangements consist of
various licensed software products and services such as software maintenance services, consulting services, and subscription services.



In software license arrangements that include rights to multiple elements, we allocate the total arrangement fee among each of the elements using the
residual method, under which revenues are allocated to undelivered elements based on vendor-specific objective evidence of their fair value and the residual amounts of revenue are allocated to the delivered elements. If sufficient vendor-specific
objective evidence does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until the earlier of the point at which such sufficient vendor-specific objective evidence does
exist or all elements of the arrangement have been delivered. If the only undelivered element is software maintenance, the entire fee is recognized ratably as subscription revenue.



In software license arrangements where we also provide consulting services, license revenues generally are recognized upon
delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the performance of the consulting services, and the consulting services are
not essential to the functionality of the software. If we determine that the consulting services are essential to the functionality of the software, or payment of the license fees is dependent upon the performance of the consulting services, then
both the license and consulting fees are recognized on a percentage-of-completion basis. We typically do not consider the consulting services we provide in such arrangements to be essential to the functionality of the software and, therefore,
license revenues are typically recognized upon delivery of the software and consulting revenues are recognized as the services are performed.



In arrangements where we license our software and also host the licensed software for our customer, a software element is only considered present if our
customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for our customer to either operate the software on its own hardware or contract with another
vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of license revenues described above, we recognize license revenues when the software is delivered, and the subscription hosting
revenues are recognized as the hosting service is provided. The hosting set-up fees, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the hosting service period. If we
determine that a separate software element as described above is not present, we combine the software license fees with the subscription hosting fees and recognize them ratably over the subscription service period, as subscription revenue.



Our software license contracts typically include an
industry-standard software performance warranty provision. We account for potential warranty claims in accordance with the guidance prescribed by SFAS No. 5, Accounting for Contingencies(SFAS 5). Historically, we have experienced
minimal warranty claims. Our standard license contracts typically do not include contingencies such as rights of return or conditions of acceptance.



Portions of our revenues are generated from sales made through our reseller partners. When we assume a majority of the business risks associated with
performance of the contractual obligations, we record the associated revenues on a gross basis, with amounts paid to our reseller partners recognized as cost of operations. Our assumption of such business risks is evidenced when, among other things,
we take responsibility for delivery of the product or service, establish pricing of the arrangement, and are the primary obligor in the arrangement. When our reseller partner assumes the majority of the business risks associated with the performance
of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller partner.



Stock-Based Compensation



We issue stock options to employees and outside directors pursuant to our stock option plans and provide employees with the right to purchase stock
pursuant to our employee stock purchase plan (ESPP and, collectively, referred to as stock-based compensation plans). We account for our stock-based compensation plans under the intrinsic value method of accounting as defined
by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations. Under this method, no stock-based compensation expense has been reflected in our results of operations
for the three and nine months ended June 30, 2004 and 2003, as all options granted under these plans had exercise prices equal to the fair market value of the underlying common stock on the date of grant, and any purchase discounts under the ESPP
were within statutory limits.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
123), as amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure (SFAS 148), requires companies that choose to continue to follow APB 25 to provide pro forma disclosure of the impact
of accounting for stock-based compensation using the fair value method of SFAS 123. For purposes of these pro forma disclosures, the estimated fair value of the options is amortized over the related vesting periods. The estimated fair value of the
purchases under the ESPP is amortized over the related purchase periods, ranging from 6 to 24 months. The following table illustrates the effect on net income (loss) and related per share amounts if we had accounted for our stock-based compensation
plans under the fair value method of accounting of SFAS 123, as amended:



|                                                      |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   |        |  
|----------------------------------------------------- |  | -------------------------- | ------ | - | ------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ------ | -
|(in thousands, except per share data)                 |  | Three MonthsEnded June 30, |        |   | Nine MonthsEnded June 30, |  
|                                                      |  | 2004                       |        |   | 2003                      |   |       | 2004 |  |   | 2003   |  
|Net income (loss), as reported                        |  | $                          | 654    |   |                           | $ | 399   |      |  | $ | 1,457  |   |  | $ | (43    | )
|Add: Stock-based compensation expense, as reported    |  |                            |       |   |                           |   |      |      |  |   |       |   |  |   |       |  
|Deduct: Pro forma compensation expense under SFAS 123 |  |                            | (1,640 | ) |                           |   | (560  | )    |  |   | (3,609 | ) |  |   | (1,199 | )
|                                                      |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   |        |  
|Pro forma net loss                                    |  | $                          | (986   | ) |                           | $ | (161  | )    |  | $ | (2,152 | ) |  | $ | (1,242 | )
|                                                      |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   |        |  
|Net income (loss) per share:                          |  |                            |        |   |                           |   |       |      |  |   |        |   |  |   |        |  
|Basic, as reported                                    |  | $                          | 0.02   |   |                           | $ | 0.01  |      |  | $ | 0.04   |   |  | $ | (0.00  | )
|                                                      |  |                            |        |  
|Basic, pro forma                                      |  | $                          | (0.03  | ) |                           | $ | (0.01 | )    |  | $ | (0.07  | ) |  | $ | (0.04  | )
|                                                      |  |                            |        |  
|Diluted, as reported                                  |  | $                          | 0.02   |   |                           | $ | 0.01  |      |  | $ | 0.04   |   |  | $ | (0.00  | )
|                                                      |  |                            |        |  
|Diluted, pro forma                                    |  | $                          | (0.03  | ) |                           | $ | (0.01 | )    |  | $ | (0.07  | ) |  | $ | (0.04  | )



We estimate the fair
value of our options and ESPP shares using the Black-Scholes option valuation model, which is one of several methods that can be used to estimate option values. The Black-Scholes model was developed for use in estimating the fair value of short-term
traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions, including our expected stock price volatility. Because options granted under stock-based
compensation arrangements have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect this estimate, we believe the Black-Scholes model does not necessarily
provide a reliable measure of the fair value of options granted under our stock-based compensation plans.



We estimated the following fair values of options and rights granted under our stock-based compensation plans at the date of grant using the Black-Scholes
model with the following weighted-average assumptions:



|                                         |  |                            |      |   |                           |   |      |      |  |   |      |   |  |   |      |  
|---------------------------------------- |  | -------------------------- | ---- | - | ------------------------- | - | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                         |  | Three MonthsEnded June 30, |      |   | Nine MonthsEnded June 30, |  
|Employee and Director Stock Option Plans |  | 2004                       |      |   | 2003                      |   |      | 2004 |  |   | 2003 |  
|Expected life in years from grant date   |  |                            | 4.5  |   |                           |   | 4.5  |      |  |   | 4.5  |   |  |   | 4.4  |  
|Risk-free interest rate                  |  |                            | 2.6  | % |                           |   | 2.6  | %    |  |   | 2.6  | % |  |   | 2.6  | %
|Volatility                               |  |                            | 0.79 |   |                           |   | 0.85 |      |  |   | 0.79 |   |  |   | 0.85 |  
|Dividend yield                           |  |                            |     |   |                           |   |     |      |  |   |     |   |  |   |     |  
|                                         |  |                            |      |  
|Estimated weighted-average fair value    |  | $                          | 7.15 |   |                           | $ | 3.63 |      |  | $ | 6.51 |   |  | $ | 1.43 |  
|                                         |  |                           
|                                         |  | Three MonthsEnded June 30, |      |   | Nine MonthsEnded June 30, |  
|ESPP                                     |  | 2004                       |      |   | 2003                      |   |      | 2004 |  |   | 2003 |  
|Expected life in years from grant date   |  |                            | 1.3  |   |                           |   | 1.5  |      |  |   | 1.3  |   |  |   | 1.5  |  
|Risk-free interest rate                  |  |                            | 1.3  | % |                           |   | 2.4  | %    |  |   | 1.3  | % |  |   | 2.4  | %
|Volatility                               |  |                            | 0.78 |   |                           |   | 1.03 |      |  |   | 0.78 |   |  |   | 1.03 |  
|Dividend yield                           |  |                            |     |   |                           |   |     |      |  |   |     |   |  |   |     |  
|                                         |  |                            |      |  
|Estimated weighted-average fair value    |  | $                          | 4.60 |   |                           | $ | 0.91 |      |  | $ | 4.60 |   |  | $ | 0.91 |  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



Net Income (Loss) Per Share



We calculate basic net income (loss) per share by dividing net income (loss)
for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted-average number of shares of common
stock outstanding during the period, plus any dilutive effect from stock-based compensation plans and warrants during the period, under the treasury stock method. The computation of basic and diluted net income (loss) per share is as follows:



|                                                             |  |                            |        |                           |   |        |  |      |        |  |   |        |  
|------------------------------------------------------------ |  | -------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------ | -
|(in thousands, except per share data)                        |  | Three MonthsEnded June 30, |        | Nine MonthsEnded June 30, |  
|                                                             |  | 2004                       |        | 2003                      |   | 2004   |  | 2003 |       
|Net income (loss)                                            |  | $                          | 654    |                           | $ | 399    |  | $    | 1,457  |  | $ | (43    | )
|                                                             |  |                            |        |                          
|Weighted-average shares of common stock outstanding          |  |                            | 32,753 |                           |   | 31,433 |  |      | 32,488 |  |   | 30,998 |  
|Add: Dilutive effect of stock-based compensation plans (1)   |  |                            | 4,139  |                           |   | 4,197  |  |      | 4,328  |  |   |       |  
|Add: Dilutive effect of warrants (2)                         |  |                            |       |                           |   |       |  |      |       |  |   |       |  
|                                                             |  |                            |        |                           |   |        |  |      |        |  |   |        |  
|Dilutive weighted-average shares of common stock outstanding |  |                            | 36,892 |                           |   | 35,630 |  |      | 36,816 |  |   | 30,998 |  
|                                                             |  |                            |        |                           |   |        |  |      |        |  |   |        |  
|Basic net income (loss) per share                            |  | $                          | 0.02   |                           | $ | 0.01   |  | $    | 0.04   |  | $ | (0.00  | )
|Diluted net income (loss) per share                          |  | $                          | 0.02   |                           | $ | 0.01   |  | $    | 0.04   |  | $ | (0.00  | )

---

|(1) | Excludes the effect of 1.3 million and 0.9 million shares of common stock subject to outstanding options and rights granted under our stock-based compensation plans for the three
months ended June 30, 2004 and 2003, respectively, and 1.0 million and 5.3 million shares of common stock subject to outstanding options and rights granted under our stock-based compensation plans for the nine months ended June 30, 2004 and 2003,
respectively, as their effect was anti-dilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Excludes the effect of 2.5 million and 3.5 million shares of common stock subject to outstanding warrants for the three months ended June 30, 2004 and 2003, respectively, and 2.5
million and 3.5 million shares of common stock subject to outstanding warrants for the nine months ended June 30, 2004 and 2003, respectively, as their effect was anti-dilutive.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



Recently Issued Accounting Standards



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity (SFAS 150). SFAS 150 establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity. SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective as of October 1, 2003. The adoption of SFAS 150 had no impact on our
financial statements.



In July 2003, the EITF reached a
consensus on EITF 03-5. In August, 2003, the FASB ratified the EITFs consensus. EITF 03-5 addresses whether non-software deliverables included in an arrangement that contains software that is more than incidental to the products or services as
a whole are included within the scope of SOP 97-2. Software-related elements include software products and services such as those listed in SOP 97-2, as well as any non-software deliverable(s) for which a software deliverable is essential to its
functionality. If the software element that is more than incidental to the products or services as a whole is not essential to the functionality of any of the unrelated elements, the unrelated elements would not be considered software-related and,
therefore, would be excluded from the scope of SOP 97-2. The provisions of EITF 03-5 became effective for us on October 1, 2003. In accordance with EITF 03-5, we have determined that, in software arrangements that also include services provided
under our subscription delivery models, the software typically is not essential to the functionality of such services. Because we have determined that the software is not essential to the functionality of such services, the subscription set-up fees
as well as the associated direct and incremental costs, such as labor and commissions, are matched with the subscription monthly revenue and recognized over the service period. Historically, in accordance with SOP 97-2, we deferred the subscription
set-up fees and related costs, and then recognized them in full upon commencement of the subscription services. The application of the consensus reached in EITF 03-5 did not have a material effect on our financial statements.



NOTE 2. AMORTIZATION OF INTANGIBLE ASSET



Amortization of intangible asset represents the allocation of the acquired
customer base intangible asset from our July 2002 acquisition of Captura Software, Inc. The gross and net carrying amounts of the acquired customer base intangible asset at June 30, 2004 and September 30, 2003 were as follows:



|                                             |  |               |        |   |                    |   |        |  
|-------------------------------------------- |  | ------------- | ------ | - | ------------------ | - | ------ | -
|(in thousands)                               |  | June 30, 2004 |        |   | September 30, 2003 |  
|Acquired customer base intangible asset:     |  |               |        |   |                    |   |        |  
|Gross carrying amount                        |  | $             | 5,700  |   |                    | $ | 5,700  |  
|Accumulated amortization                     |  |               | (2,185 | ) |                    |   | (1,330 | )
|                                             |  |               |        |   |                    |   |        |  
|Acquired customer base intangible asset, net |  | $             | 3,515  |   |                    | $ | 4,370  |  
|                                             |  |               |        |   |                    |   |        |  



The related
amortization expense reflected in our results of operations totaled $285,000 for the three months ended June 30, 2004 and 2003, respectively, and $855,000 for the nine months ended June 30, 2004 and 2003, respectively.



Estimated amortization expense for the remaining three months of fiscal 2004
and annually for the remaining estimated useful life is as follows:



|                                                         |  |   |      
|-------------------------------------------------------- |  | - | -----
|Estimated remaining amortization expense (in thousands): |  |  
|Fiscal 2004                                              |  | $ | 285  
|Fiscal 2005                                              |  |   | 1,140
|Fiscal 2006                                              |  |   | 1,140
|Fiscal 2007                                              |  |   | 950  



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)  (Continued)



NOTE 3. CONTINGENCIES



Litigation



In July 2001, we and several of our current and former officers were named as defendants in two securities class-action lawsuits filed in the United
States District Court for the Southern District of New York. In April 2002, these lawsuits were consolidated. The consolidated complaint generally alleges claims against us, several of our current and former officers, and the underwriters of our
initial public offering in December 1998, based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. The plaintiffs in this lawsuit seek damages in unspecified amounts, which, if awarded,
could be substantial. This lawsuit is one of more than 300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In October 2002, the court dismissed
the individual defendants from the consolidated lawsuit, without prejudice, pursuant to a stipulated agreement between the parties. In February 2003, the presiding judge denied a motion to dismiss all claims. In July 2003, we decided to participate
in a proposed settlement being negotiated by representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to participate in
the proposed settlement to avoid the cost and distraction of continued litigation. We do not believe that the proposed settlement will have any material adverse effect on our business, financial condition, or results of operations. The proposed
settlement is expected to be funded by a group of insurers on behalf of the issuer defendants. The proposed settlement agreement would dispose of all remaining claims against us and the individual defendants, without any admission of wrongdoing by
us or the individual defendants. The proposed settlement is subject to final approval by the parties and the court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the parties and the court fail to
approve the proposed settlement, we would continue to defend ourselves vigorously.



Product Warranty and Indemnification Obligations



We provide software products and related services to our customers under sales contracts, which usually include a limited warranty regarding product and service performance and a limited indemnification of customers against losses,
expenses, and liabilities from damages that may be awarded against them if our software or services are found to infringe upon a patent, copyright, trademark, or other proprietary right of a third party. The contracts generally limit the scope of
and remedies for such indemnification obligations in a variety of industry-standard respects, including but not limited to certain time and geography-based scope limitations and a right for us to replace an infringing product. We also enter into
similar limited indemnification terms in agreements with certain strategic business partners and vendors. We account for potential warranty claims in accordance with the guidance in SFAS 5, and base our estimates on historical experience and current
expectations. To date, we have experienced minimal warranty claims and have not had to reimburse any customers for any losses related to the limited indemnification described above.



NOTE 4. COMPREHENSIVE INCOME (LOSS)



SFAS No. 130, Reporting Comprehensive Income, establishes standards for the reporting and display of comprehensive income (loss) and its components
in the financial statements. The item of comprehensive income (loss) that we currently report is foreign currency translation adjustment. Components of comprehensive income (loss) were as follows:



|                                         |  |                            |     |                           |      |   |      |  |      |       |  |   |     |  
|---------------------------------------- |  | -------------------------- | --- | ------------------------- | ---- | - | ---- |  | ---- | ----- |  | - | --- | -
|(in thousands)                           |  | Three MonthsEnded June 30, |     | Nine MonthsEnded June 30, |     
|                                         |  | 2004                       |     |                           | 2003 |   | 2004 |  | 2003 |      
|Net income (loss)                        |  | $                          | 654 |                           |      | $ | 399  |  | $    | 1,457 |  | $ | (43 | )
|Other comprehensive income (loss):       |  |                            |     |                           |      |   |      |  |      |       |  |   |     |  
|Foreign currency translation adjustments |  |                            | (52 | )                         |      |   |     |  |      | 77    |  |   |    |  
|                                         |  |                            |     |                           |      |   |      |  |      |       |  |   |     |  
|Total comprehensive income (loss)        |  | $                          | 602 |                           |      | $ | 399  |  | $    | 1,534 |  | $ | (43 | )
|                                         |  |                            |     |                           |      |   |      |  |      |       |  |   |     |  



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ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides information we believe
is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our Consolidated Financial Statements and Notes that are included with this report. Also, the
discussion of Critical Accounting Policies and Estimates in this MD&A is an integral part of the analysis of our results of operations and financial condition.



Throughout this report Concur Technologies, Inc. is referred to as Concur, we,us, and
our.



Special Note Regarding Forward-Looking Statements



This document contains forward-looking statements
regarding our plans, objectives, expectations, intentions, future financial performance, future financial condition, and other statements that are not historical facts. These statements can be identified by our use of the future tense, or by
forward-looking words such as may, will, expect, anticipate, believe, intend, estimate, continue, and other similar words and phrases. These
forward-looking statements involve many risks and uncertainties. Examples of such risks and uncertainties are described under Factors That May Affect Financial Condition And Results Of Operations and elsewhere in this report, as well as
in our other filings with the Securities and Exchange Commission (SEC). The occurrence of any of these risks and uncertainties may cause our actual results to differ materially from those anticipated in our forward-looking statements,
which could have a material adverse effect on our business, results of operations, and financial condition. All forward-looking statements included in this report are based on information available to us as of the date of this report. We assume no
obligation or duty to update any such forward-looking statements.



Overview



Concur Technologies, Inc. is a leading provider of
Corporate Expense Management subscription service and software solutions. Our core purpose is to use innovation to drive costs out of our customers businesses. Our solutions are designed to automate and streamline business processes, reduce
operating costs, improve internal controls, and empower businesses to apply greater insight to their spending patterns through comprehensive analytics.



Our solutions include:



| |  | Concur Expense for travel and entertainment expense management.
| | - | ----------------------------------------------------------------



| |  | Concur Payment for the management of employee requests for vendor payments.
| | - | ----------------------------------------------------------------------------



| |  | Value-added solutions that integrate with our expense and payment solutions, including Concur Imaging Service for imaging of receipts and invoices, Concur Travel Integration for end-to-end integration of the travel planning process, Concur Analysis
Service for enhanced business intelligence
reporting, Concur Total Access for expense data
entry by voice, laptop, or handheld device when not connected to the Internet, Transaction Assessment Module for the detection of fraudulent expense transactions, and Concur Benchmarking Service for benchmarking of travel costs.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our solutions are designed to accommodate a wide range of customer business needs, technical requirements and budget objectives for businesses worldwide
through our flexible subscription services and license delivery models.



| |  | Subscription Services.We provide our solutions as a subscription service to customers on an outsourced basis over the Internet or a dedicated telecommunications connection.
We offer subscription service offerings that are tailored to the needs of different customer types.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Large-Market Subscription Services. We offer both highly-configurable and standardized subscription service offerings that are marketed primarily to large-market companies
with 2,000 or more employees. We generally provide these services on a transaction basis, under which our customers pay for access to our service based on the number of transactions submitted through the service. Fees typically include a
one-time set-up fee and recurring subscription fees for the service. We also offer hosting and application management of our software for customers who purchase (or have previously purchased) an up-front license for our software. In these cases, our
customer typically pays a one-time set up fee and recurring subscription fees for such services.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Middle-Market Subscription Services. We offer standardized subscription service offerings that are marketed primarily to middle-market companies with less than 2,000
employees. We typically offer these services on an authorized-user basis, under which each customer is authorized to use the service based on the number of users that are authorized to submit transaction reports by operation of the
service. Fees typically include a one-time set-up fee and recurring subscription fees for the service.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | License. We license our software to customers that want highly-configurable solutions that are typically installed at the customers premises on customer-furnished
equipment, managed by the customer, and accessed over a corporate Intranet. We generally offer licenses for our software on either a transaction basis or an authorized-user basis. Fees typically include an up-front license fee for the software and
recurring fees for related software maintenance services.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We market and sell our solutions worldwide through a direct sales organization as well as through indirect distribution channels via our strategic reseller and referral partners. We continue to develop and maintain our existing strategic
relationships and enter into additional strategic relationships to grow our subscription revenues.



We generate our revenues from the delivery of subscription services, consulting services, and the sale of software licenses. Subscription revenues have
grown significantly as a percentage of our total revenues, to 71% of total revenue for the nine months ended June 30, 2004 from 58% in the same period in fiscal 2003. This growth reflects our strategic shift to a business services model that is less
dependent on license sales. Our subscription services revenues are recognized over the time period we provide our services to customers, in contrast to license revenues, which typically are recognized upon software delivery to the customer. We
believe that our strategic shift to the business services model provides more stable and predictable revenues and operating results compared to prior years when our license revenues were more significant than our subscription services revenues.



RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2004 AND
2003



Selected Financial Data



In the following table, we show financial data derived from our unaudited
statements of operations as a percentage of total revenues for the periods indicated. The operating results for the periods shown are not necessarily indicative of the results that may be expected for any future period.



|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   
|-------------------------------- |  | -------------------------- | - |  | -------------------------- | - |  | ----- | - |  | ----- | --
|                                 |  | Three MonthsEnded June 30, |   |  | Nine Months Ended June 30, |  
|                                 |  | 2004                       |   |  | 2003                       |   |  | 2004  |   |  | 2003  |   
|Revenues:                        |  |                            |   |  |                            |   |  |       |   |  |       |   
|Subscription                     |  | 71.7                       | % |  | 60.3                       | % |  | 71.2  | % |  | 58.1  | % 
|Consulting                       |  | 20.6                       |   |  | 21.8                       |   |  | 20.0  |   |  | 26.5  |   
|License                          |  | 7.7                        |   |  | 17.9                       |   |  | 8.8   |   |  | 15.4  |   
|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   
|Total revenues                   |  | 100.0                      |   |  | 100.0                      |   |  | 100.0 |   |  | 100.0 |   
|                                 |  |                            |   | 
|Expenses:                        |  |                            |   |  |                            |   |  |       |   |  |       |   
|Cost of operations               |  | 41.0                       |   |  | 39.1                       |   |  | 40.7  |   |  | 41.7  |   
|Sales and marketing              |  | 25.3                       |   |  | 25.8                       |   |  | 25.5  |   |  | 26.0  |   
|Research and development         |  | 15.1                       |   |  | 18.5                       |   |  | 16.2  |   |  | 18.8  |   
|General and administrative       |  | 12.5                       |   |  | 12.3                       |   |  | 12.5  |   |  | 11.9  |   
|Amortization of intangible asset |  | 2.0                        |   |  | 2.0                        |   |  | 2.1   |   |  | 2.0   |   
|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   
|Total expenses                   |  | 95.9                       |   |  | 97.7                       |   |  | 97.0  |   |  | 100.4 |   
|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   
|Income (loss) from operations    |  | 4.1                        |   |  | 2.3                        |   |  | 3.0   |   |  | (0.4  | ) 
|                                 |  |                            |   | 
|Interest income                  |  | 0.4                        |   |  | 0.4                        |   |  | 0.4   |   |  | 0.4   |   
|Interest expense                 |  | (0.0                       | ) |  | (0.2                       | ) |  | (0.1  | ) |  | (0.3  | ) 
|Other income, net                |  | 0.0                        |   |  | 0.3                        |   |  | 0.2   |   |  | 0.2   |   
|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   
|Net income (loss)                |  | 4.5                        | % |  | 2.8                        | % |  | 3.5   | % |  | (0.1  | )%
|                                 |  |                            |   |  |                            |   |  |       |   |  |       |   



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##### Table of Contents

Results of Operations



Revenues



|                       |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   
|---------------------- |  | --------------------------- | ------ | ---- | -------------------------- | ------ |  | ----- | ---- |  | ---- | ------ | ------ | - | ------ |  | ----- | --
|                       |  | Three Months Ended June 30, |        |      | Nine Months Ended June 30, |       
|(dollars in thousands) |  | 2004                        |        | 2003 |                            | Change |  |       | 2004 |  | 2003 |        | Change |  
|Subscription           |  | $                           | 10,365 |      | $                          | 8,546  |  | 21.3  | %    |  | $    | 29,239 |        | $ | 24,727 |  | 18.2  | % 
|Consulting             |  |                             | 2,985  |      |                            | 3,085  |  | (3.2  | )%   |  |      | 8,212  |        |   | 11,300 |  | (27.3 | )%
|License                |  |                             | 1,107  |      |                            | 2,543  |  | (56.5 | )%   |  |      | 3,639  |        |   | 6,553  |  | (44.5 | )%
|                       |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   
|Total revenues         |  | $                           | 14,457 |      | $                          | 14,174 |  | 2.0   | %    |  | $    | 41,090 |        | $ | 42,580 |  | (3.5  | )%
|                       |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   



Subscription
Revenues. Subscription revenues consist of monthly fees paid for subscription services offerings, the amortization of set-up fees in connection with those services, fees paid for software maintenance services under software license arrangements,
and in certain multiple element subscription arrangements where vendor specific objective evidence of fair value does not exist for an undelivered subscription element, the amortized portion of the related license and consulting fees. In addition to
the level of fees we charge and collect, subscription revenues are affected by the number of new customers we add, the related contract durations, and our retention rate of existing customers.



Subscription revenues increased by 21.3% for the three months ended June 30,
2004, compared to the same period in fiscal 2003 and increased by 18.2% for the nine months ended June 30, 2004, compared to the same period in fiscal 2003. Revenues from our subscription services contributed approximately 90% of the absolute dollar
increase in subscription revenues for both the three months and nine months ended June 30, 2004, compared to the same periods in the fiscal 2003. Continued expansion of our customer base for outsourced subscription services was the main reason for
these increases. The increase in our customer base reflects an ongoing trend of increased market demand for our subscription service offerings and strong retention of existing customers. We believe this trend is, in part, related to the
markets continued and growing acceptance of outsourced services, limited information technology capital budgets, and limited information technology resources available to manage traditional self-hosted software license arrangements.



We expect subscription revenues to continue to grow during the
remainder of fiscal 2004 and into fiscal 2005 as a result of the growing demand for our subscription service offerings.



Consulting Revenues. Consulting revenues consist of fees for professional services, which include system implementation and integration, planning,
data conversion, training, and documentation of procedures. Consulting revenues are affected by the number of implementations of our solutions for new customers and implementation of upgrades and enhancements to these solutions for existing
customers, and whether consulting fees in multiple element arrangements require deferral or are deemed to be subscription related.



The 3.2% decrease in consulting revenues for the three months ended June 30, 2004, compared to the same period in fiscal 2003, was due in part to the
deferral of revenues totaling approximately $0.5 million in the third quarter of fiscal 2004 relating to consulting services performed under contracts with certain strategic resellers, which are being recognized ratably over the remaining life of
the contracts. This decrease was offset in part by increased consulting services performed for new and existing customers.



The 27.3% decrease in consulting revenues for the nine months ended June 30, 2004, compared to the same period in fiscal 2003, was due in part to the
deferral of revenues totaling approximately $1.2 million in the third and second quarters of fiscal 2004 relating to the reseller contracts described above. The decrease was also attributable to fewer new license customers added and fewer upgrades
and enhancements for existing customers during the nine months ended June 30, 2004, compared to the same period in fiscal 2003.



We anticipate future consulting revenues will fluctuate based on the level and mix of new sales of our solutions and the related consulting services
provided, as well as the demand for and timing of upgrades and enhancements to our solutions. For the remainder of fiscal 2004, we expect consulting revenues to increase moderately compared to the third quarter of fiscal 2004, based on new customer
contracts, and existing customer contracts for upgrades to our products and services.



License Revenues. License revenues consist of fees earned from granting licenses to use our software products.



The decreases in license revenues for the three and nine months ended June 30, 2004, compared to the same periods in fiscal 2003, reflect the continued
shift from our licensed model to our subscription services model particularly with respect to large-market companies.



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##### Table of Contents

We expect the absolute dollar value of quarterly future license revenues to fluctuate but generally trend
down over time, reflecting the markets continued shift from a licensed model to a subscription services model.



International Revenues. We market and sell our software and services through our direct sales organization, and through strategic referral and
reseller arrangements in both the United States and in international markets. Our direct sales organization maintains offices in the United States, the United Kingdom and Australia. Revenues from customers outside the United States as a percentage
of total revenues were 14% and 11% for the three months ended June 30, 2004 and 2003, respectively, and 15% and 12% for the nine months ended June 30, 2004 and 2003, respectively. Historically, fluctuations in foreign currency exchange rates have
not had a material effect on our operating results. We expect our international revenues to continue to grow in the near term, as our products and services continue to gain acceptance in international markets and in particular with the expansion of
international functionality within our solutions.



Expenses



|                                  |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   
|--------------------------------- |  | --------------------------- | ------ | ---- | -------------------------- | ------ |  | ----- | ---- |  | ---- | ------ | ------ | - | ------ |  | ----- | --
|                                  |  | Three Months Ended June 30, |        |      | Nine Months Ended June 30, |       
|(dollars in thousands)            |  | 2004                        |        | 2003 |                            | Change |  |       | 2004 |  | 2003 |        | Change |  
|Cost of operations                |  | $                           | 5,922  |      | $                          | 5,536  |  | 7.0   | %    |  | $    | 16,704 |        | $ | 17,733 |  | (5.8  | )%
|Sales and marketing               |  |                             | 3,663  |      |                            | 3,654  |  | 0.2   | %    |  |      | 10,495 |        |   | 11,081 |  | (5.3  | )%
|Research and development          |  |                             | 2,177  |      |                            | 2,627  |  | (17.1 | )%   |  |      | 6,661  |        |   | 8,008  |  | (16.8 | )%
|General and administrative        |  |                             | 1,814  |      |                            | 1,750  |  | 3.7   | %    |  |      | 5,145  |        |   | 5,078  |  | 1.3   | % 
|Amortization of intangible assets |  |                             | 285    |      |                            | 285    |  | 0.0   | %    |  |      | 855    |        |   | 855    |  | 0.0   | % 
|                                  |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   
|Total expenses                    |  | $                           | 13,861 |      | $                          | 13,852 |  | 0.1   | %    |  | $    | 39,860 |        | $ | 42,755 |  | (6.8  | )%
|                                  |  |                             |        |      |                            |        |  |       |      |  |      |        |        |   |        |  |       |   



Cost of
Operations. Cost of operations expenses consist of salaries and related expenses (including travel related expenses) and allocated overhead costs (which include depreciation, occupancy, insurance, telecommunications, and computer equipment
expenses) associated with employees and contractors who provide our subscription and consulting services, co-location and related telecommunications costs, fees paid to third parties for referrals, resale arrangements, royalties, and amortization of
deferred set-up costs we incur in connection with our subscription services.



Cost of operations expenses as a percentage of total revenues were 41.0% for the three months ended June 30, 2004 compared with 39.1% for the same period in fiscal 2003. Excluding the impact of the decrease in license
revenues discussed above, the cost of operations expenses as a percentage of revenues decreased to 43.9% for the three months ended June 30, 2004 from 46.6% for the same period in fiscal 2003. This decrease was due in part to improvements in our
solutions and implementation methodology, which now enable us to provide our subscription and consulting services more efficiently, as well as the increase in new sales of our subscription services for which implementation costs are deferred and
amortized. Total salaries and related expenses and allocated overhead costs increased 4.9% for the three months ended June 30, 2004 compared to the same period in fiscal 2003. Co-location and related telecommunications costs increased 0.4% for the
three months ended June 30, 2004 compared to the same period in fiscal 2003. Fees paid to third parties for referrals, resale arrangements, and royalties increased 25.2% for the three months ended June 30, 2004, compared to the same period in fiscal
2003, which were related to the increase in their sales of Concurs products and services.



Cost of operations expenses as a percentage of revenues were 40.7% for the nine months ended June 30, 2004 compared with 41.7% for the same period in
fiscal 2003. Excluding the impact of the decrease in license revenues discussed above, the cost of operations expenses as a percentage of revenues decreased to 44.2% for the nine months ended June 30, 2004 from 48.1% for the same period in fiscal
2003. This decrease was due in part to improvements in our solutions and implementation methodology, which now enable us to provide our subscription and consulting services more efficiently, as well as the increase in new sales of our subscription
services for which implementation costs are deferred and amortized. Total salaries and related expenses and allocated overhead costs decreased 6.3% for the nine months ended June 30, 2004 compared to the same period in fiscal 2003. Co-location and
related telecommunications costs decreased 12.9% for the nine months ended June 30, 2004 compared to the same period in fiscal 2003. Fees paid to third parties for referrals, resale arrangements, and royalties increased 7.7% for the nine months
ended June 30, 2004, compared to the same period in fiscal 2003.



Through the end of fiscal 2005, we expect cost of operations expenses to trend down as a percentage of total revenues as the incremental cost to deploy and support each new customer decreases due to economies of scale anticipated in our
subscription service model infrastructure, and that the absolute dollar value of the cost of operations will increase as we continue to deploy and support additional new customers.



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Sales and Marketing. Sales and marketing expenses consist of salaries and related expenses
(including sales commissions and travel related expenses) and allocated overhead costs associated with our sales and marketing personnel, and, to a lesser extent, miscellaneous sales and marketing costs, such as advertising, trade shows, and other
promotional activities.



Sales and marketing expenses increased
slightly in the three months ended June 30, 2004, compared to the same period in fiscal 2003 due to an increase in salaries and related expenses and allocated overhead costs of 0.3%, offset by a decrease of 0.1% in miscellaneous costs, for the three
months ended June 30, 2004 compared to the same period in fiscal 2003.



The 5.3% decrease in sales and marketing expenses for the nine months ended June 30, 2004 compared to the same period in fiscal 2003 was due to a decrease in salaries and related expenses and allocated overhead costs of 5.5%, and a decrease
1.4% in miscellaneous costs, for the nine months ended June 30, 2004 compared to the same period in fiscal 2003.



During the remainder of fiscal 2004, and into fiscal 2005, we expect total sales and marketing expenses to increase in absolute dollars but generally
decrease modestly as a percentage of total revenues as investment in sales and marketing personnel and programs continues to increase, to meet growing market demand.



Research and Development. Research and development expenses consist of salaries and related expenses, and allocated
overhead costs associated with employees and contractors engaged in software engineering, program management, and quality assurance.



Research and development expenses recognized decreased 17.1% ($0.5 million) for the three months ended June 30, 2004, compared to the same period in
fiscal 2003, and decreased 16.8% ($1.3 million) for the nine months ended June 30, 2004, compared to the same period in fiscal 2003. Additional capitalization of research and development costs represented $0.7 million and $1.3 million of the
decrease in research and development expenses in the three and nine months ended June 30, 2004, respectively, compared to the corresponding periods in the prior year. This additional capitalization, as provided for under generally accepted
accounting principles, was primarily the result of our shift from developing software for resale to developing software to support our subscription services offerings. Such internal use of internally developed software requires the capitalization of
related costs. Also, additional capitalization of development costs were incurred in fiscal 2004 related to services performed under certain strategic reseller contracts executed in fiscal 2004. These decreases were offset in part by an increase in
personnel and allocated overhead costs totaling $0.2 million in the three months ended June 30, 2004.



During the remainder of fiscal 2004 and into 2005, we anticipate that total research and development expenses recognized will increase moderately as we
continue to focus on product innovation and enhancement.



General and Administrative. General and administrative expenses consist of salaries and related expenses and allocated overhead costs associated with employees and contractors in finance, human resources, legal, information
technology, facilities, and, to a lesser extent, miscellaneous costs, such as professional fees and provision for doubtful accounts.



General and administrative expenses increased 3.7% for the three months ended June 30, 2004, compared to the same period in fiscal 2003 due to an increase
in salaries and related expenses and allocated overhead costs of 7.4%, offset by a decrease of 13.7% in miscellaneous costs, for the three months ended June 30, 2004 compared to the same period in fiscal 2003.



General and administrative expenses increased 1.3% for the nine months ended
June 30, 2004, compared to the same period in fiscal 2003 due to an increase in salaries and related expenses and allocated overhead costs of 0.4%, and an increase of 7.3% in miscellaneous costs, for the nine months ended June 30, 2004 compared to
the same period in fiscal 2003.



During the remainder of fiscal
2004 and into fiscal 2005, we expect the absolute dollar amount of general and administrative expenses to increase on a quarterly basis due to increases in personnel costs related to the growth of our business, as well as to support our continued
Sarbanes-Oxley compliance efforts.



Amortization of
Intangible Asset. Amortization of intangible asset represents the allocation of the acquired customer base intangible asset from our July 2002 acquisition of Captura. This intangible is being ratably amortized as a non-cash charge to operations
over five years, consistent with the timing and level of the expected cash flows from the underlying acquired customer contracts.



Interest Income and Interest Expense



|                       |  |                             |    |      |                            |        |  |       |      |  |      |     |        |   |     |  |       |   
|---------------------- |  | --------------------------- | -- | ---- | -------------------------- | ------ |  | ----- | ---- |  | ---- | --- | ------ | - | --- |  | ----- | --
|                       |  | Three Months Ended June 30, |    |      | Nine Months Ended July 30, |       
|(dollars in thousands) |  | 2004                        |    | 2003 |                            | Change |  |       | 2004 |  | 2003 |     | Change |  
|Interest income        |  | $                           | 64 |      | $                          | 55     |  | 16.4  | %    |  | $    | 167 |        | $ | 165 |  | 1.2   | % 
|Interest expense       |  |                             | 9  |      |                            | 28     |  | (67.9 | )%   |  |      | 24  |        |   | 105 |  | (77.1 | )%



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##### Table of Contents

Interest Income and Interest Expense. The fluctuations in interest income in the three and nine
month periods ended June 30, 2004 compared to the same periods in fiscal 2003 reflect higher levels of interest-earning cash and cash equivalent investments offset by lower interest rates. The decreases in interest expense in the three and nine
months ended June 30, 2004 compared to the same periods in the fiscal 2003 were due to lower average outstanding bank borrowings and capital lease obligations.



Provision for Income Taxes. No provision for federal or state income taxes has been recorded as we have accumulated significant net losses since
inception, resulting in deferred tax assets. Since our utilization of these deferred tax assets is dependent on future profits, which are not assured, we have recorded a valuation allowance equal to the net deferred tax assets.



Financial Condition



Our total assets were $50.5 million and $43.0 million at June 30, 2004 and September 30, 2003, respectively, representing an
increase of $7.5 million or 17.4%. This increase consisted primarily of increases in our cash and cash equivalents and property and equipment at June 30, 2004. Our cash and cash equivalents totaled $23.9 million as of June 30, 2004, compared to
$21.6 million at September 30, 2003, representing an increase of $2.3 million, or 10.6%. Our cash flow activity is described in more detail in the Liquidity and Capital Resources section below. Net property and equipment increased to
$4.2 million at June 30, 2004 from $1.3 million at September 30, 2003, due in part to additional purchases of computer equipment and software as well as investment in software used internally, in connection with our subscription services offerings.



Accounts receivable balances, net of allowances of $0.6
million and $0.5 million, were $9.5 million and $7.9 million as of June 30, 2004 and September 30, 2003, respectively, representing an increase of $1.6 million or 20.3%. The increase was due primarily to a higher level of receivables from our
subscription customers (including increases in software maintenance renewals), due in turn to the growth of the subscription business. Average days sales outstanding (DSO) in accounts receivable were 60 days and 51 days for the
quarters ended June 30, 2004, and September 30, 2003, respectively, reflecting changes in the timing of customer receipts. Our target range for DSOs is 50 to 60 days.



Our total current liabilities were $16.8 million and $15.2 million at June 30, 2004 and September 30, 2003, respectively,
representing an increase of $1.6 million, or 10.5%. This increase was mainly due to an increase of $1.5 million in the current portion of deferred revenues. Including the $2.3 million increase in long term deferred revenues, total deferred revenues
increased by $3.8 million to $15.7 million at June 30, 2004 from $11.9 million at September 30, 2004. This increase resulted from the larger customer base for our subscription services offerings at June 30, 2004, as well as revenues deferred in the
third and second quarters of fiscal 2004 resulting from the execution of contracts during fiscal 2004 with strategic resellers.



Our common stock balance was $239.6 million and $237.4 million at June 30, 2004 and September 30, 2003, respectively, an increase of $2.2 million, or
0.9%. The increase reflected proceeds received from the exercise of stock options under our stock based compensation plans and purchases of stock under our employee stock purchase plan.



Liquidity and Capital Resources



Our available sources of liquidity as of June 30, 2004 consisted principally of cash and cash equivalents totaling $23.9 million. We have a revolving
credit line and equipment purchase facility available, discussed in more detail below.



Our operating cash inflows consist of cash received from our subscription and license customers. Our operating cash outflows consist of cash payments to employees and vendors directly related to subscription and
license customers, payments under arrangements with third parties who provide hosting infrastructure services in connection with our subscription services offerings, related sales and marketing and administrative costs, and research and development
costs. Operating activities provided $1.7 million and used $0.7 million during the three months ended June 30, 2004 and 2003, respectively, and provided $4.7 million and $3.5 million for the nine months ended June 30, 2004 and 2003, respectively.
The improvements in our operating cash flows in the three and nine months ended June 30, 2004 compared to the same periods in fiscal 2003 were driven by profitable operating results and increases in deferred revenue balances.



Our investing activities used $1.6 million and provided $0.7 million for the
three months ended June 30, 2004 and 2003, respectively, and used $4.2 million and provided $0.7 million for the nine months ended June 30, 2004 and 2003, respectively. Property and equipment purchases totaled $1.6 million for the three months ended
June 30, 2004 and $4.2 million for the nine months ended June 30, 2004. These purchases consisted mainly of computer equipment and software, as well as investment in software used internally, in connection with our subscription services offerings.



Our financing activities provided $0.9 million and $2.0
million during the three months ended June 30, 2004 and 2003, respectively. Financing activities provided $1.7 million and $1.4 million for the nine months ended June 30, 2004 and 2003,



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respectively. Proceeds from financing activities during these periods have consisted primarily of proceeds from employee
stock option exercises and ESPP activity, which we do not directly control, and, to a lesser extent, from borrowings. Scheduled payments made on loans and capital leases are our primary cash outflows from financing activities.



In March 2002, we entered into a loan and security agreement with a bank for
a $1.0 million equipment credit facility. The loan and security agreement for the equipment facility allowed for borrowings in the amount of actual equipment purchases up to $1.0 million made through December 2002. The outstanding indebtedness under
the credit facility was approximately $0.2 million at June 30, 2004, bears interest at the banks prime rate, which was 4.0% at June 30, 2004, and matures in December 2004.



In September 2002, we amended the terms of the loan and security agreement to add Captura as a borrower, and to include a
one-time additional term loan of $0.4 million, the proceeds of which were used to refinance certain indebtedness owed by Captura to another creditor. The outstanding indebtedness under the one-time additional term loan was approximately was $0.1
million at June 30, 2004, bears interest at the banks prime rate, which was 4.0% at June 30, 2004, and matures in October 2004.



In September 2003, we amended the terms of the loan and security agreement to add a revolving line of credit in an amount not to exceed the lesser of 80%
of eligible accounts receivable or $5.0 million, bearing interest at a rate equal to the banks prime rate, which was 4.0% at June 30, 2004. Amounts under this revolving line of credit may be repaid and reborrowed at any time prior to September
2004, at which time all outstanding amounts will be due and payable. As of June 30, 2004, no amounts were outstanding under this line of credit. The September 2003 amenedment also added an additional equipment facility for borrowings in the amount
of actual equipment purchases up to $1.0 million, made through September 2004. This additional equipment facility bears interest at a rate equal to the banks prime rate, which was 4.0% at June 30, 2004, and matures in September 2006. As of
June 30, 2004, no amounts were outstanding under this additional equipment facility. The September amendment also eliminated a restricted cash balance requirement of $1.4 million.



In March 2004, we entered into an arrangement to finance the premium for our current directors and officers
liability insurance policy. The loan under this financing agreement bears interest at 5.4% and matures in December 2004. As of June 30, 2004, the balance under the arrangement was $0.2 million.



In January 2003, our Board of Directors authorized a stock repurchase program
under which we may repurchase up to one million shares of our outstanding stock over a two-year period. Stock purchases under the stock repurchase program may be made from time to time in the open market based on market conditions. Any purchases
will be made at the then-current market prices, and repurchased shares will be retired. No purchases have been made under this program through the date of this report.



The following table summarizes our contractual obligations as of June 30, 2004 related to long-term debt, operating leases,
and purchase obligations:



|                            |  |                        |       |            |   |            |  |                 |   |       |   |   |  |   |      
|--------------------------- |  | ---------------------- | ----- | ---------- | - | ---------- |  | --------------- | - | ----- | - | - |  | - | -----
|(in thousands)              |  | Payments due by period
|                            |  | Less than1 year        |       | 1  3years |   | 3  5years |  | Morethan 5years |   | Total
|Contractual Obligations:    |  |                        |       |            |   |            |  |                 |   |       |   |   |  |   |      
|Long-term debt obligations  |  | $                      | 446   |            | $ |           |  | $               |  |       | $ |  |  | $ | 446  
|Operating lease obligations |  |                        | 1,823 |            |   |           |  |                 |  |       |   |  |  |   | 1,823
|Purchase obligations (1)    |  |                        | 2,053 |            |   | 3,400      |  |                 |  |       |   |  |  |   | 5,453
|                            |  |                        |       |            |   |            |  |                 |   |       |   |   |  |   |      
|Total                       |  | $                      | 4,322 |            | $ | 3,400      |  | $               |  |       | $ |  |  | $ | 7,722
|                            |  |                        |       |            |   |            |  |                 |   |       |   |   |  |   |      

---

|(1) | Reflects future minimum commitments under arrangements with third parties who provide hosting infrastructure services in connection with the provision of our subscription services
offerings.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We do not use derivative financial
instruments.



We believe our cash and cash equivalents, amounts
available under our equipment credit facilities and revolving line of credit, as well as positive operating cash flows, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12
months. In the longer term, we may require additional funds to support our business needs and may seek to raise such additional funds through private or public sales of debt or equity securities, strategic relationships, bank debt, lease financing
arrangements, or other available means. If additional funds are raised through the issuance of equity securities, stockholders may experience additional dilution, or such equity securities may have rights, preferences, or privileges senior to those
of the holders of our common stock. If adequate funds are not available or are not available on acceptable terms to meet our business needs, our business may be harmed.



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Critical Accounting Policies and Estimates



Our discussion and analysis of financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable
under the circumstances; such estimates and judgments are periodically re-evaluated. Actual results may differ materially from these estimates under different assumptions, judgments, or conditions.



The estimates and judgments noted above are affected by our application of
accounting policies. Our critical accounting policies are those most important to the portrayal of our financial condition and results of operations, and which require the most difficult, subjective, or complex judgments. Our critical accounting
policies include revenue recognition, allowances for accounts receivable, business combinations and valuation of intangible assets, impairment of goodwill and certain other long-lived assets, accounting for stock-based compensation, and accounting
for income taxes.



Revenue Recognition. We generate our
revenues from the delivery of subscription services (which include software maintenance services), consulting services, and the sale of software licenses. We recognize revenues in accordance with accounting standards for software and service
companies.



Generally, we recognize revenue when evidence of an
arrangement exists, delivery has occurred, the fees are fixed or determinable, and collection is considered probable. If collection is not considered probable, we recognize revenues when the fees are collected. If the fees are not fixed or
determinable, we recognize revenues as payments become due from the customer. Accordingly, our judgment as to the probability of collection and determinability of fees may materially affect the timing of our revenue recognition and results of
operations. If non-standard acceptance periods or non-standard performance criteria are required, we recognize revenue upon the earlier of satisfaction of the acceptance/performance criteria or the expiration of the acceptance period, if applicable.



In contractual arrangements that include the provision of
multiple elements, we apply the accounting guidance most applicable to the specific arrangement to determine how contract consideration should be measured and allocated to the separate elements in the arrangement. Multiple element arrangements
require the delivery or performance of multiple products, services and/or rights to use assets. Generally, separate contracts with the same customer that are entered into at or near the same time are presumed to have been negotiated together and,
therefore, are accounted for as a single contractual arrangement in determining how contract consideration should be measured and allocated to the separate elements in the arrangement. Typically, we measure and allocate the total arrangement fee
among each of the elements based on their fair value or vendor-specific objective evidence of fair value. Vendor-specific objective evidence is based on the price charged when an element is sold separately or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable that the price, once established, will not change prior to separate market introduction.



Subscription revenues consist of monthly fees paid for subscription services, the amortization of set-up fees in connection
with those services, fees paid for software maintenance services under software license arrangements, and in certain multiple element subscription arrangements where vendor specific objective evidence of fair value does not exist for an undelivered
subscription element, the amortized portion of the related license and consulting fees. Subscription fees are typically recognized monthly as the service is provided to the customer. Based on the particular subscription service offering, the related
set-up fees, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the longer of the contractual lives, or the expected lives of the customer relationships, which generally
range from two to five years. For those subscription service offerings that have been commercially available for only a short period of time, the contractual lives are used as the best estimate of the expected lives of the customer relationships. We
continue to evaluate and adjust the length of these amortization periods as we gain more experience with customer contract renewals and contract cancellations. It is possible that, in the future, the estimates of expected customer lives may change
and, if so, the periods over which such subscription set-up fees and costs are amortized will be adjusted. Any such change in estimated expected customer lives will affect our future results of operations. Software maintenance services include
technical support and the right to receive unspecified upgrades and enhancements on a when-and-if available basis. Fees for software maintenance services are typically billed annually in advance of performance with provisions for subsequent
automatic annual renewals. We defer the related revenues and recognize them ratably over the respective maintenance terms, which typically are one year. Subscription revenues are adjusted for estimated sales allowances, which are based on our
historical experience, including a review of our experience related to price adjustments and sales credits issued.



Consulting revenues consist of fees for professional services, which consist of system implementation and integration, planning, data conversion,
training, and documentation of procedures. Consulting service fees are typically billed and recognized



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as revenue on a time-and-materials basis. In some instances, we sell our consulting services under milestone or fixed-fee
contracts, and in such cases, consulting revenues are recognized on a percentage-of-completion basis. Consulting revenues are adjusted for estimated sales allowances, which are based on our historical experience, including a review of our experience
related to price adjustments and sales credits issued.



In
service arrangements that include both consulting and subscription services, but not a license of our software, we recognize consulting revenues as they are performed if the consulting services qualify as a separate unit of accounting within the
arrangement. The consulting services qualify as a separate unit of accounting if they have value to the customer on a stand-alone basis, there is objective and reliable evidence of the fair value of the subscription services, and delivery or
performance of the subscription services is considered probable and substantially within our control. We have determined that, in our service arrangements of this type, the consulting services typically qualify as a separate unit of accounting and,
accordingly, the consulting revenues are recognized as the services are performed. If the consulting services do not qualify as a separate unit of accounting, the related revenues are combined with the subscription revenues, and recognized ratably
over the subscription period. Our judgment as to whether the consulting services qualify as a separate unit of accounting may materially affect the timing of our revenue recognition and our results of operations.



License revenues consist of fees earned from, and allocable to, grants of
licenses to use our software products. We recognize license revenues when evidence of a license arrangement exists, we have delivered the software, the amount of the transaction is fixed or determinable, collection is probable, and vendor-specific
objective evidence of fair value exists for any undelivered elements of the arrangement. Elements included in our multiple-element software arrangements consist of various licensed software products and services such as software maintenance
services, consulting services, and subscription services.



In
software license arrangements that include rights to multiple elements, we allocate the total arrangement fee among each of the elements using the residual method, under which revenues are allocated to undelivered elements based on vendor-specific
objective evidence of their fair value and the residual amounts of revenue are allocated to the delivered elements. If sufficient vendor-specific objective evidence does not exist for the allocation of revenue to the various elements of the
arrangement, all revenue from the arrangement is deferred until the earlier of the point at which such sufficient vendor-specific objective evidence does exist or all elements of the arrangement have been delivered. If the only undelivered element
is software maintenance, the entire fee is recognized ratably, as subscription revenue. We are required to exercise judgment in deciding how to interpret the evidence of fair value to determine the allocation of arrangement consideration with
respect to a given element, and in determining whether an established price is likely to change prior to separate market introduction. These judgments may materially affect the timing of our revenue recognition and results of operations.



In software license arrangements where we also provide consulting
services, license revenues generally are recognized upon delivery of the software, provided that the criteria for recognition of software license revenues described above are met, payment of the license fees is not dependent upon the performance of
the consulting services, and the consulting services are not essential to the functionality of the software. If we determine that the consulting services are essential to the functionality of the software, or payment of the license fees is dependent
upon the performance of the consulting services, then both the license and consulting fees are recognized on a percentage-of-completion basis. We typically do not consider the consulting services we provide in such arrangements to be essential to
the functionality of the software and, therefore, license revenues are typically recognized upon delivery of the software and consulting revenues are recognized as the services are performed. Accordingly, our judgment as to whether consulting
services should be considered essential to the functionality of the licensed software may materially affect the timing of our revenue recognition and results of operations.



In arrangements where we license our software and also host the licensed software for our customer, a software element is
only considered present if our customer has the contractual right to take possession of the software at any time during the hosting period without significant penalty, and it is feasible for our customer to either run the software on its own
hardware or contract with another vendor to host the software. If the arrangement meets these criteria, as well as the other criteria for recognition of license revenue described above, we recognize license revenue when the software is delivered,
and the subscription hosting revenues are recognized as the hosting service is provided. The hosting set-up fees, as well as the associated direct and incremental costs, such as labor and commissions, are deferred and recognized ratably over the
hosting service period. If we determine that a separate software element as described above is not present, we combine the software license fees with the subscription hosting fees and recognize them ratably over the subscription service period as
subscription revenue. Our judgment as to whether we meet the criteria above could have a material affect on the timing and mix of our revenue recognition and on our results of operations.



Our software license contracts typically include an industry-standard software performance warranty provision. We account
for potential warranty claims in accordance with the guidance prescribed by Statement of Financial Accounting Standards (SFAS) No. 5, Accounting for Contingencies(SFAS 5). Historically, we have experienced minimal
warranty claims. Our ability to estimate the quantity and amount of any potential future software warranty claims requires judgment, and could have a material affect on our results of operations and financial position. Our standard software license
contracts typically do not include contingencies such as rights of return or conditions of acceptance.



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Portions of our revenues are generated from sales made through our reseller partners. When we assume a
majority of the business risks associated with performance of the contractual obligations, we record the associated revenues on a gross basis, with amounts paid to our reseller partners recognized as cost of operations. Our assumption of such
business risks is evidenced when, among other things, we take responsibility for delivery of the product or service, establish pricing of the arrangement, and are the primary obligor in the arrangement. When our reseller partner assumes the majority
of the business risks associated with the performance of the contractual obligations, we record the associated revenues net of the amounts paid to our reseller partner. Our judgment as to whether we have assumed the majority of the business risks
associated with performance of the contractual obligations materially affects how we report revenues and cost of operations.



Accounts Receivable Allowances. We record provisions for estimated sales allowances to subscription and consulting revenues in the period in which
the related revenues are recorded. We record our sales allowances based on historical experience, including a review of our experience related to price adjustments and sales credits issued.



We make judgments as to our ability to collect outstanding receivables, and
we provide an allowance for doubtful accounts, included in general and administrative expenses. In estimating allowances for doubtful accounts, we consider specific receivables when collection is doubtful, as well as an analysis of our historical
bad debt experience and the current economic environment. If the data used to estimate the allowance provided for doubtful accounts does not adequately reflect our future ability to collect outstanding receivables, additional provisions for doubtful
accounts may be needed and future results of operations could be materially affected.



Business Combinations and Valuation of Intangible Assets.We account for business combinations in accordance with SFAS No. 141, Business Combinations(SFAS 141) and the related acquired
intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). In accordance with SFAS 141, the cost of the acquired company is allocated to the identifiable tangible and intangible assets and
liabilities acquired, and any remaining amount is classified as goodwill. Certain intangible assets, such as the acquired customer base, are amortized over their expected economic lives in proportion to their expected future cash flows, while
in-process research and development costs, if any, are expensed at the acquisition date. In accordance with SFAS 142, goodwill is not amortized, but is instead tested for impairment at least annually and, if impaired, the value of goodwill is
adjusted accordingly. Our future operating performance will be impacted by amortization of intangible assets and potential impairment charges related to goodwill. The allocation of the purchase price of the acquired company to intangible assets and
goodwill requires us to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate for these cash flows. Should different conditions prevail,
material write-downs of intangible assets and/or goodwill could occur.



Impairment of Goodwill and Certain Other Long-Lived Assets. Under SFAS 142, we are required to test goodwill for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis
and between annual tests in certain circumstances. We have determined that we have only one reporting unit. Goodwill is tested for impairment in a two-step process. First, we determine if the carrying value of the reporting unit exceeds its fair
value, which would indicate that goodwill may be impaired. If we determine that goodwill may be impaired, we compare the implied fair value of the goodwill to its carrying amount to determine if there is an impairment loss. We performed our initial
test for impairment upon the adoption of SFAS 142 in October 2002, and our most recent required annual test occurred in March 2004. In our tests, we determined that goodwill was not impaired. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of the goodwill assigned to each reporting unit. Significant
judgments that are required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates, and other assumptions. Changes in these estimates and assumptions could materially affect the
determination of fair value for the reporting unit and the impairment of goodwill, if any.



Stock-Based Compensation.We have elected to continue to account for our stock-based compensation plans using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,Accounting
for Stock Issued to Employees and related interpretations, as opposed to the fair value method allowed by SFAS No. 123, Accounting for Stock-Based Compensation, as amended. Accordingly, no stock-based compensation cost has been reflected
in our statement of operations for any of the periods presented, as all options granted under these plans had exercise prices equal to the fair market value of the underlying common stock on the date of grant, and any purchase discounts under the
Employee Stock Purchase Plan were within statutory limits. If we are required to change our accounting for stock-based compensation in the future to the fair value method, such as proposed by the Financial Accounting Boards (FASB)
Exposure Draft on Share-Based Payments issued on March 31, 2004, we would incur and record substantial, non-cash, stock-based compensation expense, which would have a material effect on our results of operations. The pro forma effect of using the
fair value method of accounting is provided in Note 1 of the Notes to Consolidated Financial Statements in this report.



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Income Taxes. We are required to estimate our income taxes in each of the jurisdictions in which
we operate. This involves estimating our current tax liabilities, including the impact, if any, of additional taxes resulting from tax examinations as well as making judgments regarding our ability to realize our deferred tax assets. Such judgments
can involve complex issues and may require an extended period to resolve.



We have experienced significant operating losses to date, as well as assumed significant net operating loss carryforwards from acquisitions, both of which have resulted in significant net deferred tax assets. We have
recorded a valuation allowance equal to these deferred tax assets and will continue to do so until the point at which we believe future profitability is more than reasonably assured. In the event we determine it is more likely than not we will be
able to realize our deferred tax assets in excess of our net recorded amount, an adjustment to our valuation allowance would be recorded and may result in a reduction to goodwill, and/or the recording of a significant tax benefit, which would
increase net income in the period such a determination was made. Depending on the amount of deferred tax assets that may be realized, and depending on whether we incur taxable profits in the periods following the recognition of any tax benefit, we
may record tax expense in these subsequent periods. Any recorded tax expense would result in minimal actual tax payments until the point at which we fully utilized our accumulated net operating loss carryforwards, which are subject to the
limitations and timing as described below.



As a result of
prior equity financings and the equity issued in conjunction with certain acquisitions, we have incurred ownership changes, as defined by applicable tax laws. Accordingly, our use of the acquired net operating loss carryforwards may be limited.
Further, to the extent that any single year loss is not utilized to the full amount of the limitation, such unused loss is carried over to subsequent years until the earlier of its utilization or the expiration of the relevant carryforward period.
Our net operating loss carryforwards may extend to a period of greater than 10 years, subject to limitations and timing as prescribed by applicable tax laws and generally accepted accounting principles.



Factors That May Affect Financial Condition And Results Of Operations



We operate in a dynamic and rapidly changing business environment that
involves substantial risk and uncertainty. The following discussion addresses some of the risks and uncertainties that could cause, or contribute to causing, actual results to differ materially from expectations. In evaluating our business, readers
should pay particular attention to the descriptions of risks and uncertainties described below and in other sections of this report and our other filings with the Securities and Exchange Commission.



We Rely Heavily On Sales Of Concur Expense Solutions.



We generate a substantial portion of our revenues from our Concur Expense
subscription services and software solutions, which we expect to continue for the foreseeable future. Our future financial performance and revenue growth will depend, in large part, upon the successful development, introduction, and customer
acceptance of new and enhanced versions of our Concur Expense solutions, and our business could be harmed if we fail to deliver the enhancements that customers want with respect to our current and future offerings. There can be no assurance that our
services and software solutions will achieve widespread market penetration or that we will derive significant revenues from sales of such solutions.



We Are Increasingly Dependent On A Subscription Service Business Model, Which Is Difficult To Evaluate, And Which Could Fail To Adequately Support Our Business.



Our subscription revenues are based on a new and
evolving business model, which is subject to a number of risks including our increasing reliance on a relatively novel revenue model for our industry, a reduction of license revenues as we focus on building our subscription business, the lower gross
margins and higher fixed costs associated with our subscription business, as compared to the license business, unpredictable sales cycles, and the possibility of subscription cancellations. We began offering our software as a service on an
outsourced basis over the Internet in 1999. Our subscription services delivery models have continued to evolve and, today, we anticipate that our future financial performance and revenue growth will depend, in large part, upon the growth of our
subscription services. Our subscription revenues represented 72% and 71% of total revenues for the three and nine months ended June 30, 2004, respectively, and we depend substantially on outsourced subscription services delivery models for our
anticipated revenues and cash flows. We anticipate that subscription revenues will continue to represent a significant percentage of our total revenues and that our future financial performance and revenue growth will depend, in large part, upon the
growth in customer demand for our outsourced subscription services delivery models. As such, we have invested



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significantly in infrastructure, operations, and strategic relationships to support these models, which represent a
significant departure from the delivery strategies that we and other enterprise software vendors have traditionally employed. Our new and evolving business model makes our business operations and prospects difficult to evaluate.



Our emphasis on building our subscription business has contributed to reduced
software license revenues in recent periods. Our license revenues have declined substantially in recent periods, due in large part to the growth of our subscription services business, resulting in license revenues for the nine months ended June 30,
2004 that were 44% lower than those in the same period of fiscal 2003. The limited history of our subscription business model makes it difficult to predict whether demand for subscription services will continue. If it does not, we may not be able to
generate sufficient license revenues to offset any decrease in sales of subscription services.



If our subscription services business does not grow sufficiently, our cost of revenues may exceed such revenues, which could harm our operating results. Our costs in providing subscription services are relatively
fixed in the short-term, so we may not be able to adjust our expenses quickly enough to offset any potential slowdown in subscription sales. In addition, the cycle for implementing our subscription services can be unpredictable because our services
must be integrated with a customers existing systems. Any delays in implementation may prevent us from recognizing subscription revenue for periods of time, even when we have already incurred costs relating to the implementation of our
subscription services. Furthermore, we may experience unanticipated increases in costs associated with providing our subscription services and software maintenance services to customers over the term of our customer contracts as a result of
inflation, inaccurate internal cost projections or other factors, which may harm our operating results. Additionally, some of our subscription services contracts contain cancellation provisions, and, as a result, we may recognize substantially less
revenue than the aggregate value of those contracts over their terms. If a customer cancels or otherwise seeks to terminate a subscription or maintenance agreement prior to the end of its term, or if we are unable to renew such an agreement at the
end of its term, our operating results in future periods could be substantially harmed.



We Depend On Consulting Revenues, Which May Fluctuate Or Decline.



Our consulting revenues represented 20% of total revenues for the three and nine months ended June 30, 2004, respectively. We anticipate that consulting revenues will continue to represent a significant component of
our total revenues. The level of consulting revenues depends largely upon demand for our consulting services, which consist of system implementation and integration, planning, data conversion, training, and documentation of procedures. Our
consulting revenues could fluctuate or decline to the extent sales of our subscription services and/or software licenses fluctuate or decline or if third-party organizations such as systems integrators compete with us for the installation or
servicing of our offerings. Our ability to increase consulting revenues will depend in large part on our ability to increase the scale of our consulting organization, including our ability to recruit and train a sufficient number of qualified
consulting personnel.



We Depend On Software License Revenues, Which
Makes Our Operating Results Difficult To Predict.



Our
software license revenues represented 8% and 9% of total revenues for the three and nine months ended June 30, 2004, respectively. While software license revenues are diminishing as a percent of total revenues, we continue to rely, in part, on the
contribution of our license revenues to our overall operating results. However, the timing and amounts of license revenues can be difficult to predict, which can lead to variability in operating results. For example, our licensed software is
typically shipped when orders are received, so license backlog at the beginning of any quarter typically represents only a small portion of the quarters expected license revenues. This makes license revenues in any quarter difficult to
forecast because they are determined by orders booked and shipped in that quarter. Moreover, we have historically recognized a substantial percentage of license revenues in the last month of the quarter, frequently in the last week or even the last
days of the quarter, and we expect this trend to continue for as long as our licensed software represents a meaningful part of our overall business. Because our expenses are relatively fixed in the near term, any shortfall from anticipated revenues
or any delay in the recognition of revenues could result in significant variations in operating results from quarter to quarter. Furthermore we find it difficult to forecast quarterly license revenues because our sales cycle, from initial evaluation
to delivery of software, is lengthy and varies substantially from customer to customer. The continuing weakness of capital spending for enterprise software contributes to the length and unpredictability of our sales cycle for licensed products,
making related revenues more difficult to predict and subjecting our operating results to greater volatility on a quarter over quarter basis.



Our Reported Financial Results May Be Adversely Affected By Changes In Accounting Principles Generally Accepted In The United States.



GAAP is subject to interpretation by the FASB, the American Institute of
Certified Public Accountants, the SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and
could affect the reporting of transactions



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completed before the announcement of a change. In particular, revenue recognition rules for software and service
companies are complex and require significant interpretation by us. Changes in circumstances, interpretations, or accounting principles or guidance may require us to modify our revenue recognition policies. Such modifications could impact the timing
of revenue recognition and our operating results. See Managements Discussion And Analysis Of Financial Condition And Results Of Operations regarding our critical revenue recognition policies. Further, we currently are not required
to record stock-based compensation charges if the employees stock option exercise price is equal to or exceeds the fair market value of our common stock on the grant date. If we are required to change our accounting for stock-based
compensation in the future to the fair value method, such as presently proposed by the FASB, we would incur and record substantial, non-cash based, stock compensation expense, which would have a material effect on our results of operations.



We Face Significant Competition.



The market for our solutions is intensely competitive and rapidly changing.
The direct competition we face depends on the market segment focus and delivery model capabilities of our competitors. We also face indirect competition from potential customers internal development efforts and, at times, have to overcome
their reluctance to move away from existing paper-based systems. Our principal direct competition comes from independent vendors of Corporate Expense Management software and services, as well as financial institutions and ERP vendors that sell
products similar to ours along with their suites of other products and services. Many of our competitors have longer operating histories, greater financial, technical, marketing, and other resources, greater name recognition, and a larger total
number of customers for their products and services than we do. Some of our competitors, particularly major financial institutions and ERP vendors, have well-established relationships with our current and potential customers as well as with systems
integrators and other vendors and service providers. These competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion, and
sale of their products, than us. In addition, we anticipate the entrance of new competitors in the future. Increased competition may result in price reductions, reduced gross margins, and change in market share and could have a material adverse
effect on our business, financial condition, and results of operations.



Interruption Of Our Operations Could Significantly Harm Our Business.



Significant portions of our operations depend on our ability to protect our computer equipment and the information stored in our computer equipment, offices, and hosting facilities against damage from fire, power
loss, telecommunications failures, unauthorized intrusion, and other events. We back up software and related data files regularly and store the back-up files at various off-site locations. However, there can be no assurance that our disaster
preparedness will eliminate the risk of extended interruption of our operations. We have engaged third-party hosting facility providers to provide the hosting facilities and related infrastructure for our subscription services. We also retain
third-party telecommunications providers to provide Internet and direct telecommunications connections for our services. These providers may fail to perform their obligations adequately. Any damage or failure that interrupts our operations or
destroys some or all of our data or the data of our customers, whether due to natural disaster or otherwise, could expose us to litigation, loss of customers, or other harm to our business.



We Depend Significantly On Direct Sales, Which Are Subject To Personnel Risks And May
Cause Us To Miss Some Opportunities.



We rely on our
direct sales force to sell our solutions in the marketplace, particularly with respect to companies with 2,000 or more employees. There is significant competition for direct sales personnel with the advanced sales skills and technical knowledge we
need. If we were unable to hire or retain competent sales personnel our business would suffer. In addition, by relying primarily on a direct sales model for these larger companies, we may miss sales opportunities that might be available through
other sales channels, such as domestic and international resellers and strategic referral arrangements.



It Is Important For Us To Continue To Develop And Maintain Strategic Relationships.



We depend on strategic reseller and referral relationships to offer products and services to a larger customer base than we can reach through direct
sales, telesales, and internal marketing efforts. If we were unable to maintain our existing strategic relationships or enter into additional strategic relationships, we would have to devote substantially more resources to the distribution, sales,
and marketing of our products and services. Our success depends in part on the ultimate success of our strategic reseller and referral partners and their ability to market our products and services successfully. Our existing strategic referral
partners are not obligated to refer any potential customers to us. In addition, some of these third parties have entered, and may continue to enter, into strategic relationships with our competitors. Further, many of our strategic partners have
multiple strategic relationships, and they may not regard us as significant for their businesses. Our strategic partners may terminate their respective relationships with us, pursue other partnerships or relationships, or attempt to develop or
acquire products or services that compete with our products or services. Our strategic partners also may interfere with our ability to enter into other desirable strategic relationships.



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There Are Risks Associated With International Operations.



Our international operations, which are subject to risks associated with
operating abroad, are becoming an increasingly important component of our business. Revenues from customers outside the United States represented approximately $7.6 million, $6.6 million, and $4.4 million in fiscal 2003, 2002, and 2001,
respectively, and represented approximately $2.0 million and $6.0 million in the three and nine months ended June 30, 2004, respectively. These international operations are subject to a number of difficulties and special costs, including:



| |  | costs of customizing products for foreign countries;
| | - | ----------------------------------------------------



| |  | laws and business practices favoring local competitors;
| | - | -------------------------------------------------------



| |  | uncertain regulation of electronic commerce;
| | - | --------------------------------------------



| |  | compliance with multiple, conflicting, and changing governmental laws and regulations;
| | - | --------------------------------------------------------------------------------------



| |  | longer sales cycles;
| | - | --------------------



| |  | greater difficulty in collecting accounts receivable;
| | - | -----------------------------------------------------



| |  | import and export restrictions and tariffs;
| | - | -------------------------------------------



| |  | potentially weaker protection for our intellectual property than in the United States, and practical difficulties in enforcing such rights abroad;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | difficulties staffing and managing foreign operations;
| | - | ------------------------------------------------------



| |  | multiple conflicting tax laws and regulations; and
| | - | --------------------------------------------------



| |  | political and economic instability.
| | - | -----------------------------------



Our international operations also face foreign currency-related risks. To date, most of our revenues have been denominated in United States dollars, but
we believe that an increasing portion of our revenues will be denominated in foreign currencies. We currently do not engage in foreign exchange hedging activities and, therefore our international revenues and expenses are currently subject to the
risks of foreign currency fluctuations.



We must also customize
our services and products for international markets. For example, our ability to expand into international markets will depend on our ability to develop and support services and products that incorporate the tax laws, accounting practices, and
currencies of applicable countries.



Our international
operations also increase our exposure to international laws and regulations. If we cannot comply with foreign laws and regulations, which are often complex and subject to variation and unexpected changes, we could incur unexpected costs and
potential litigation. For example, the governments of foreign countries might attempt to regulate our services and products or levy sales or other taxes relating to our activities. In addition, foreign countries may impose tariffs, duties, price
controls or other restrictions on foreign currencies or trade barriers, any of which could make it more difficult for us to conduct our business in international markets.



We intend to continue to expand our international sales and marketing activities and enter into relationships with
additional international distribution partners. We are in the early stages of developing our indirect distribution channels in markets outside the United States. We may not be able to attract and retain distribution partners that will be able to
market our products effectively.



Our Quarterly Revenues And Operating
Results May Fluctuate In Future Periods And We May Fail To Meet Expectations Of Investors And Public Market Analysts, Which Could Cause The Price Of Our Common Stock To Decline.



Our quarterly revenues and operating results may fluctuate significantly from quarter to quarter. We believe that
period-to-period comparisons of our operating results may not be meaningful and should not be relied on as an indication of our future performance. If quarterly revenues or operating results fall below the expectations of investors or public market
analysts, the price of our common stock could decline substantially. Factors that might cause quarterly fluctuations in our operating results include:



| |  | the evolving demand for our services and software;
| | - | --------------------------------------------------



| |  | spending decisions by our customers and prospective customers;
| | - | --------------------------------------------------------------



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| |  | our ability to manage expenses;
| | - | -------------------------------



| |  | the timing of new product releases;
| | - | -----------------------------------



| |  | changes in our pricing policies or those of our competitors;
| | - | ------------------------------------------------------------



| |  | the timing of execution of large contracts;
| | - | -------------------------------------------



| |  | changes in mix of our services and software offerings;
| | - | ------------------------------------------------------



| |  | the mix of sales channels through which our services and software are sold;
| | - | ---------------------------------------------------------------------------



| |  | costs of developing new products and enhancements;
| | - | --------------------------------------------------



| |  | our ability to adequately provide services and software; and
| | - | ------------------------------------------------------------



| |  | global economic and political conditions.
| | - | -----------------------------------------



In addition, due to the continuing weakness of capital spending for enterprise software and uncertainty of the current geopolitical environment, we
believe that many existing and potential customers may reassess or reduce their planned technology and Internet-related investments and defer or reprioritize purchasing decisions. Any such reduction in business spending for technology could have a
material adverse effect on our revenues and operating results. As a result, there is increased uncertainty with respect to our expected revenues.



Our Lengthy Sales Cycle Could Adversely Affect Our Financial Results.



Because of the high costs involved over a significant period of time, customers for enterprise software solutions typically
commit significant resources to an evaluation of available solutions and require us to expend substantial time, effort, and money educating them about the value of our services and software. Our sales cycle, which is the time between initial contact
with a potential customer and the ultimate sale, is often lengthy and unpredictable. As a result, we have limited ability to forecast the timing and size of specific sales. In addition, customers may delay their purchases from a given quarter to
another as they elect to wait for new product enhancements or due to other factors. Any delay in completing, or failure to complete, sales in a particular quarter or fiscal year could harm our business and could cause our operating results to vary
significantly.



Compliance With New Regulations Governing Public Company
Corporate Governance And Reporting Is Uncertain And Expensive.



Many new laws and regulations, notably those adopted in connection with the Sarbanes-Oxley Act of 2002 by the SEC, the New York Stock Exchange, and the NASDAQ National Market, impose new obligations on public companies, such as ours, which
have increased the scope, complexity, and cost of corporate governance, reporting, and disclosure practices. Our continuing preparation for and implementation of these reforms and enhanced new disclosures requires us to incur significant additional
accounting and legal costs. Any unanticipated difficulties in preparing for and implementing these reforms could result in material delays in complying with these new laws and regulations or significantly increase our costs. Our ability to fully
comply with these new laws and regulations is also uncertain. Our failure to timely prepare for and implement the reforms required by these new laws and regulations could significantly harm our business, operating results, and financial condition.
Further, these laws and regulations may make it more difficult for us to attract and retain qualified members to serve on our board of directors and board committees, particularly our audit committee, and to attract and retain qualified executive
officers.



We May Not Successfully Develop Or Introduce New Products Or
Enhancements To Existing Products.



Our future
financial performance and revenue growth will depend, in part, upon the successful development, introduction, and customer acceptance of new and enhanced versions of Concur Expense and other solutions, and our business could be harmed if we fail to
deliver enhancements to our current and future solutions that customers desire. From time to time, we experience delays in the planned release dates of our software and upgrades, and we have discovered software errors in new releases after their
introduction. New product versions or upgrades may not be released according to schedule, or may contain errors when released. Either situation could result in adverse publicity, loss of sales, delay in market acceptance of our services and
products, or customer claims, including warranty claims, against us, any of which could harm our business. If we do not deliver new product versions, upgrades, or other enhancements to existing services and products on a timely and cost-effective
basis, our business will



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be harmed. We are also continually seeking to develop new offerings. However, we remain subject to all of the risks
inherent in product development, including unanticipated technical or other development problems, which could result in material delays in product introduction and acceptance or significantly increased costs. There can be no assurance that we will
be able to successfully develop new services or products, or to introduce in a timely manner and gain acceptance of such new services or products in the marketplace.



Our Products And Services Might Not Keep Pace With Technological Change.



We must continually modify and enhance our services and products to keep
pace with changes in hardware and software platforms, database technology, electronic commerce technical standards, and other items. As a result, uncertainties related to the timing and nature of new product announcements or introductions, or
modifications by vendors of operating systems, back-office applications, and browsers and other Internet-related applications, could harm our business.



Security And Other Concerns May Discourage Use Under Our Subscription Services Models.



If customers determine that our subscription services offerings are not sufficiently scalable, do not provide adequate
security for the dissemination of information over the Internet or corporate extranets, or are otherwise inadequate for Internet or extranet use or if, for any other reason, customers fail to accept our subscription services for use, our business
will be harmed. As part of our subscription services, we receive credit card, travel booking, employee, purchasing, supplier, and other financial and accounting data, through the Internet or extranets, and there can be no assurance that this
information will not be subject to computer break-ins, theft, and other improper activity that could jeopardize the security of information for which we are responsible. Any such lapse in security could expose us to litigation, loss of customers, or
other harm to our business.



In addition, any person who is
able to circumvent our security measures could misappropriate proprietary or confidential customer information or cause interruptions in our operations. We may be required to incur significant costs to protect against security breaches or to
alleviate problems caused by breaches. Any general concern regarding security in the marketplace could deter customers or prospects from using the Internet to conduct transactions that involve transmitting confidential information. Our failure to
prevent security breaches, or well-publicized security breaches affecting the Internet in general, could significantly harm our business, operating results, and financial condition.



Privacy Concerns Are Increasing, Which Could Result In Regulatory Changes That May Harm Our Business.



Personal privacy has become a significant issue in the United States and
many other countries in which we operate. The United States and various other countries have recommended limitations on, or taken actions to limit, the use of personal information by those collecting such information. For example, in 1999, Congress
enacted the Gramm-Leach-Bliley Act, which contains provisions protecting the privacy of consumer non-public personal information collected by financial institutions. Any new or existing privacy laws, if applicable to our business, could impose
additional costs and could limit our use and disclosure of such information. If such privacy laws were deemed to apply to us, we may be required to change our activities and revise or eliminate our services, which could significantly harm our
business.



We Rely On Third-Party Software That May Be Difficult To
Replace.



We rely on software licensed from third
parties in order to offer some of our services and software offerings. This software may not continue to be available on commercially reasonable terms, if at all. The loss or inability to maintain any of these licenses could result in delays in the
sale of our services or software offerings until equivalent technology is either developed by us, or, if available, is identified, licensed, and integrated, which could harm our business.



Our Stock Price Has Experienced High Volatility In the Past, May Continue To Be Volatile, And May Decline.



The trading price of our common stock has fluctuated widely in the past and
may do so in the future, as a result of a number of factors, many of which are outside our control, such as:



| |  | variations in our actual and anticipated operating results;
| | - | -----------------------------------------------------------



| |  | changes in our earnings estimates by analysts;
| | - | ----------------------------------------------



| |  | failure to achieve earnings expectations;
| | - | -----------------------------------------



| |  | the volatility inherent in stock prices within the emerging sector within which we conduct business; and
| | - | --------------------------------------------------------------------------------------------------------



| |  | the volume of trading in our common stock, including sales of substantial amounts of common stock issued upon the exercise of outstanding options and warrants.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



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In addition, the stock market, particularly the NASDAQ National Market, has experienced extreme price and
volume fluctuations that have affected the market prices of many technology and computer software companies, particularly Internet-related companies. Such fluctuations have often been unrelated or disproportionate to the operating performance of
these companies. These broad market fluctuations could adversely affect the market price of our common stock.



Further, securities class action litigation has often been brought against companies that experience periods of volatility in the market prices of their
securities. Securities class action litigation could result in substantial costs and a diversion of our managements attention and resources. In July 2001, we and several of our current and former officers were named as defendants in two
securities class-action lawsuits based on alleged errors and omissions concerning underwriting terms in the prospectus for our initial public offering. In April 2002, these lawsuits were consolidated. This consolidated lawsuit is one of more than
300 similar pending cases filed against companies that completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In July 2003, we decided to participate in a proposed settlement being negotiated by
representatives of a coalition of issuers named as defendants in similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to participate in the proposed settlement to avoid the cost and
distraction of continued litigation. The proposed settlement agreement would dispose of all remaining claims against us and the individual defendants, without any admission of wrongdoing by us or the individual defendants. The proposed settlement is
subject to final approval by the parties and the court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the parties and the court fail to approve the proposed settlement, we would continue to defend
ourselves vigorously. Any liability we incur in connection with this lawsuit could materially harm our business and financial position and, even if we defend ourselves successfully, there is a risk that managements distraction in dealing with
this lawsuit could harm our results.



We Must Attract And Retain
Qualified Personnel.



Our success depends in large
part on our ability to continue to attract, motivate, and retain highly qualified personnel. Competition for such personnel is intense and there can be no assurance that we will be successful in attracting, motivating, and retaining key personnel.
Many of our competitors have greater financial and other resources than us for attracting experienced personnel. We also compete for personnel with other software vendors and consulting and professional services companies. Further, we presently use
stock options as incentives for our employees. If we are required to change our accounting for stock-based compensation in the future to the fair value method, such as presently proposed by the FASB, we would incur and record substantial, non-cash
based, stock compensation expense, which could potentially harm our ability to continue to offer stock options and attract and retain qualified personnel in the future. The inability to hire and retain qualified personnel or the loss of the services
of key personnel would harm our business.



We May Require Additional
Financing To Fund Our Operations Or Growth.



In the
future, we may be required to seek additional financing to fund our operations or growth. Factors such as the commercial success of our existing services and products, the timing and success of any new services and products, the progress of our
research and development efforts, our results of operations and cash flows, the use of cash in our stock repurchase program, the status of competitive services and products, and the timing and success of potential strategic alliances or potential
opportunities to acquire or sell businesses or assets may require us to seek additional funding sooner than we expect. There is no assurance that such funding will be available on terms that are acceptable to us, or at all. If we raise additional
funds through the issuance of equity securities or debt convertible into equity securities, the percentage of stock ownership by our existing stockholders would be reduced. In addition, such securities could have rights, preferences, and privileges
senior to those of our current stockholders. If adequate funds were not available on acceptable terms, our ability to achieve or sustain positive cash flows, maintain current operations, fund any potential growth, take advantage of unanticipated
opportunities, develop or enhance services or products, or otherwise respond to competitive pressures would be significantly limited.



Our Ability To Protect Our Intellectual Property Is Limited And Our Products May Be Subject To Infringement Claims By Third Parties.



Our success depends, in part, upon our proprietary technology, processes,
trade secrets, and other proprietary information, and our ability to protect this information from unauthorized disclosure and use. We rely on a combination of copyright, trade secret, and trademark laws, confidentiality procedures, contractual
provisions, and other similar measures to protect our proprietary information. We do not own any issued patents or have any patent applications pending. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that we regard as proprietary, and third parties may attempt to develop similar technology independently. We provide our licensed



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customers with access to object code versions of our software, and to other proprietary information underlying our
software. Policing unauthorized use of our products is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to
determine the extent to which piracy of our software products exists, software piracy can be expected to be a persistent problem. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an extent as do the
laws of the United States, and we expect that it will become more difficult to monitor use of our products as we increase our international presence. Over the past several years, we have made numerous changes in our product names. Although we own
registered trademarks in the United States and have filed trademark applications in the United States and in certain other countries, we do not have assurance that our strategy with respect to our trademark portfolio will be adequate to secure or
protect all necessary intellectual property. There can be no assurance that our means of protecting these proprietary rights will be adequate, or that our competitors will not independently develop similar technology. In addition, there can be no
assurance that third parties will not claim infringement by us with respect to current or future products or other intellectual property rights. Any such claims could have a material adverse effect on our business, results of operations and
financial condition.



If We Acquire Companies, Products, Or Technologies,
We May Face Risks Associated With Those Acquisitions.



In the future, we may acquire companies or make investments in other companies, products, or technologies. We may not realize the anticipated benefits of our prior or future acquisitions or investments to the extent that we anticipate, or
at all. We may have to incur debt or issue equity securities to pay for future acquisitions or investments, the issuance of which could be dilutive to our existing stockholders. If any acquisition or investment is not perceived as improving our
earnings per share, our stock price may decline. In addition, we may incur non-cash amortization charges from acquisitions, which could harm our operating results. Any completed acquisitions would also require significant integration efforts,
diverting our attention from our business operations and strategy.



Anti-Takeover Effects Of Our Rights Agreement, Charter Documents, And Delaware Law Could Discourage Or Prevent A Change In Control Of Concur.



We have a shareholder rights agreement in place, under which our stockholders have special rights, in the form of additional
voting and beneficial ownership, in the event that a person or group not approved by the board of directors were to acquire, or to announce the intention to acquire 15% or more of our outstanding shares. This plan is designed to have the effect of
discouraging, delaying or rendering more difficult an acquisition of us that has not been approved by our board of directors.



In addition, there are provisions in our certificate of incorporation and bylaws, as well as provisions in the Delaware General Corporation Law, that may
discourage, delay or prevent a change of control. For example:



| |  | our board of directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| |  | our stockholders do not have cumulative voting rights, and, therefore, each of our directors can only be elected by holders of a majority of our outstanding common stock;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a special meeting of stockholders may only be called by a majority of our board of directors, the Chairman of our board of directors, or our chief executive officer;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | our stockholders may not take action by written consent;
| | - | --------------------------------------------------------



| |  | our board of directors is divided into three classes, only one of which is elected each year; and
| | - | -------------------------------------------------------------------------------------------------



| |  | we require advance notice for nominations for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



We are exposed to market risks in the ordinary course of our business. These risks include primarily interest rate and foreign exchange risks.



Interest Rate Risk.We have debt instruments with variable rates of interest. Variable interest rate debt exposes us
to differences in future cash flows resulting from changes in market interest rates. Variable interest rate risk can be quantified by estimating the change in cash flows resulting from a hypothetical 10% increase in interest rates. We believe such a
change would not have a material impact on our cash flows related to these debt instruments.



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Foreign Currency Risk.We have foreign currency risks related to our revenue and operating
expenses denominated in currencies other than the U.S. dollar. We do not believe movements in the foreign currencies in which we transact will significantly affect future net earnings. Foreign currency risk can be quantified by estimating the change
in cash flows resulting from a hypothetical 10% adverse change in foreign exchange rates. We believe such a change would not have a material impact on our cash flows of financial instruments that are sensitive to foreign currency exchange risk.



Derivatives. We do not use derivative financial
instruments.



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ITEM 4. CONTROLS AND PROCEDURES



Evaluation Of
Disclosure Controls And Procedures.



Regulations under the
Securities Exchange Act of 1934 require public companies, including our company, to maintain disclosure controls and procedures, which are defined to mean a companys controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported, within the time periods specified in the SECs rules and forms. Our Chief
Executive Officer and our Chief Financial Officer, based on their evaluation of our disclosure controls and procedures as of the end of the period covered by this report, concluded that our disclosure controls and procedures were effective for this
purpose.



Changes In Internal Control Over Financial Reporting.



Regulations under the Securities Exchange Act of 1934
require public companies, including our company, to evaluate any change in internal control over financial reporting, which is defined as a process to provide reasonable assurance regarding the reliability of financial reporting and
preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. In connection with their evaluation of our disclosure controls and procedures as of the end of the period
covered by this report, our Chief Executive Officer and Chief Financial Officer did not identify any change in our internal control over financial reporting during the three month period ended June 30, 2004 that materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.



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PART II.
OTHER INFORMATION



ITEM 1.
LEGAL PROCEEDINGS



In July 2001,
we and several of our current and former officers were named as defendants in two securities class-action lawsuits filed in the United States District Court for the Southern District of New York. In April 2002, these lawsuits were consolidated. The
consolidated complaint generally alleges claims against us, several of our current and former officers, and the underwriters of our initial public offering in December 1998, based on alleged errors and omissions concerning underwriting terms in the
prospectus for our initial public offering. The plaintiffs in this lawsuit seek damages in unspecified amounts, which, if awarded, could be substantial. This lawsuit is one of more than 300 similar pending cases filed against companies that
completed initial public offerings between 1997 and 2000 and the underwriters that took them public. In October 2002, the court dismissed the individual defendants from the consolidated lawsuit, without prejudice, pursuant to a stipulated agreement
between the parties. In February 2003, the presiding judge denied a motion to dismiss all claims. In July 2003, we decided to participate in a proposed settlement being negotiated by representatives of a coalition of issuers named as defendants in
similar actions and their insurers. Although we believe that the plaintiffs claims have no merit, we have decided to participate in the proposed settlement to avoid the cost and distraction of continued litigation. We do not believe that the
proposed settlement will have any material adverse effect on our business, financial condition, or results of operations. The proposed settlement is expected to be funded by a group of insurers on behalf of the issuer defendants. The proposed
settlement agreement would dispose of all remaining claims against us and the individual defendants, without any admission of wrongdoing by us or the individual defendants. The proposed settlement is subject to final approval by the parties and the
court. There is no guarantee that the parties or the court will approve the proposed settlement. Should the parties and the court fail to approve the proposed settlement, we would continue to defend ourselves vigorously.



ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K



| | (a) | The following exhibits are filed as a part of this report:
| | --- | ----------------------------------------------------------



|              |  |                                                                                                                          |  |                           |  |          |  |                     |  |               |  |                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | -------- |  | ------------------- |  | ------------- |  | ----------------
|              |  |                                                                                                                          |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                      |  | Form                      |  | File No. |  | Date ofFirst Filing |  | ExhibitNumber |  | ProvidedHerewith
|31.01         |  | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                             |  |                          |  |         |  |                    |  |              |  | X               
|31.02         |  | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                             |  |                          |  |         |  |                    |  |              |  | X               
|32.01         |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |  |                          |  |         |  |                    |  |              |  | X               
|32.02         |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |  |                          |  |         |  |                    |  |              |  | X               

---

|* | This certification is not deemed filed for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | Reports on Form 8-K:
| | --- | --------------------



On April 28, 2004, Concur furnished a Current Report on Form 8-K reporting the issuance of a press release dated April 28, 2004, announcing financial results for the quarter ended March 31, 2004 under Item 12, and
furnishing the press release as an exhibit noted in response to Item 12.



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SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized to sign on behalf of the registrant and as the principal financial officer
thereof.





|                       |  |  |  |  |  |                           |  |                        
|---------------------- |  |  |  |  |  | ------------------------- |  | -----------------------
|Dated: August 13, 2004 |  |  |  |  |  | CONCUR TECHNOLOGIES, INC.
|                       |  |  |  | 
|                       |  |  |  |  |  | By                        |  | /s/ John F. Adair      
|                       |  |  |  |  |  |                           |  | John F. Adair          
|                       |  |  |  |  |  |                           |  | Chief Financial Officer



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EXHIBIT INDEX



|              |  |                                                                                                                          |  |                           |  |          |  |                     |  |               |  |                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------ |  | ------------------------- |  | -------- |  | ------------------- |  | ------------- |  | ----------------
|              |  |                                                                                                                          |  | Incorporated by Reference
|ExhibitNumber |  | Exhibit Description                                                                                                      |  | Form                      |  | File No. |  | Date ofFirst Filing |  | ExhibitNumber |  | ProvidedHerewith
|31.01         |  | Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                             |  |                          |  |         |  |                    |  |              |  | X               
|31.02         |  | Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(a).                             |  |                          |  |         |  |                    |  |              |  | X               
|32.01         |  | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |  |                          |  |         |  |                    |  |              |  | X               
|32.02         |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 and Securities Exchange Act Rule 13a-14(b).* |  |                          |  |         |  |                    |  |              |  | X               

---

|* | This certification is not deemed filed for purposes of Section 18 of the Securities Exchange Act, or otherwise subject to the liability of that section. Such
certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that Concur specifically incorporates it by reference.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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